Goldman v. Holl

• Decision Date: 16 January 2019
• Docket Number: A151832
• Court: California Court of Appeals Court of Appeals
• Parties: AMY GOLDMAN, Plaintiff and Respondent, v. EDWARD HOLL et al., Defendants and Appellants.

AMY GOLDMAN, Plaintiff and Respondent, v. EDWARD HOLL et al., Defendants and Appellants.

A151832

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE

January 16, 2019

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(San Francisco County Super. Ct. No. CGC-16-551663)

Defendants appeal from an order denying their motion to compel arbitration (Code Civ. Proc., §§ 1281.2, 1294.2).¹ We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 2013, Edward Holl was affiliated with several companies, including MP Maritime LLC (Maritime). He urged Amy Goldman to invest in one of his companies; he promised the investment would generate returns " 'exceed[ing] 20% annually.' " In two transactions in late 2013, Goldman purchased 22,200 units of Maritime for $222,000. The Millennium Trust Company (Millennium Trust) served as the custodian of some of the funds Goldman invested in Maritime. Goldman signed two purchase agreements for the transactions. The purchase agreements provided "the Investor agrees to purchase and the Company agrees to sell . . . Class A Units of the Company . . . having the rights,preferences, privileges and restrictions set forth herein and in the Operating Agreement of the Company." The purchase agreements also stated the "representations and warranties of the Members set forth in the Operating Agreement are hereby incorporated by reference . . . and the Investor hereby restates such representations and warranties in this Agreement for the benefit of the Company."

The purchase agreements did not attach the operating agreement. When she signed the purchase agreements, Goldman was unaware the operating agreement existed. In May 2014, Goldman asked Holl to return her money. Holl promised to do so, but "no funds were returned." In 2015, Holl provided Goldman with the 22-page operating agreement. The agreement is dated 2012 and it is signed only by Holl. Holl later produced documentation showing most of Goldman's money was lost shortly after she invested it.

Litigation Against Defendants

In April 2016, Goldman filed a complaint against defendants alleging 11 causes of action, including fraud and breach of fiduciary duty. Defendants answered the complaint. The answer did not refer to an arbitration provision or assert the right to arbitration as an affirmative defense. In September 2016, defendants filed a case management conference statement requesting a jury trial and stating their intention to file a summary judgment motion. Defendants did not check the box on the case management form regarding arbitration; they claimed the matter was "exempt from judicial arbitration." That same month, the parties attended a case management conference, where the trial court set a June 2017 trial date.

In late 2016, Goldman propounded written discovery. Defendants responded and—after "extensive meet-and-confer efforts"—produced 700 pages of documents, which Goldman's attorney "spent significant time analyzing" in preparation for trial. Goldman noticed Holl's deposition for January 2017. In response, defense counsel said he was withdrawing and asked to continue Holl's deposition until defendants hired a new attorney. Goldman's attorney rescheduled the deposition. In February 2017, the court granted defense counsel's motion to withdraw.

Motions to Compel Arbitration and Continue Trial

In April 2017, defendants' current attorney substituted as counsel and asked Goldman to submit to arbitration. She refused. Defendants moved to compel arbitration. They argued (1) Goldman became a "member" of Maritime when she signed the purchase agreements; (2) the purchase agreements incorporated the operating agreement, which governs the rights and obligations of Maritime's members; (3) the operating agreement contains an arbitration clause; (4) under Delaware law, Goldman was bound by the operating agreement even though she did not sign it;² and (5) Goldman's causes of action arose out of her decision to invest in, and become a member of, Maritime.

The motion attached the operating agreement, which contains the following paragraph under the "Miscellaneous" heading: "16.9 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, will be settled by arbitration in . . . Delaware or . . . New York in accordance with the rules then obtaining, of the American Arbitration Association [(AAA)] regarding commercial arbitration. Judgment upon the award rendered may be entered into any court having jurisdiction thereof. The losing party will bear the costs and expenses of such arbitration." According to defendants, Goldman agreed to submit issues regarding the scope and enforceability of the arbitration provision to the arbitrator.

Defendants argued they did not waive their right to compel arbitration. They noted they had "not initiated any discovery," had "not sought court rulings on any issues except the present issue of arbitration," and that their participation in the litigation had "been limited to responding to [Goldman's] requests for written discovery and having their counsel prepare an answer, and attend case management conferences." In his declaration, Holl averred he was requesting arbitration "because the expenses of litigation and discovery demands that [Goldman] has made . . . make this case unaffordable for me to defend." In his declaration, defense counsel stated he noticed an arbitration provisionin the operating agreement when he was formally retained by defendants in April 2017. The declaration attached the AAA rules in effect in 2016.

In May 2017, defendants moved to continue the trial date. Goldman opposed the motion, claiming she would be substantially prejudiced by a continuance. She argued defendants "made a strategic choice to wait until the trial date and then attempt to postpone the trial by filing a motion to compel arbitration. [¶] Defendants could have asked for arbitration a year ago but chose not to because [they] knew that it had a slim chance of prevailing." In June, the court granted the motion to continue and continued trial.

Opposition and Order Denying Motion to Compel Arbitration

Goldman opposed the motion to compel arbitration, claiming she did not consent to arbitration because she did not receive or sign the operating agreement and "was not even aware of the existence of the arbitration clause." Goldman also argued defendants waived their right to arbitrate. Defendants reiterated their arguments in a reply, and the court held a hearing on the motion.

In a written order, the court denied the motion, concluding defendants failed to establish the existence of a valid arbitration agreement. The court rejected defendants' contention that Goldman was bound by the operating agreement. It noted the purchase agreements did not attach the operating agreement and did "not clearly and unequivocally reference the arbitration language" of that agreement. According to the court, the purchase agreement's reference to the rights and warranties of the operating agreement did not refer to the arbitration provision. The court explained: "in common parlance, the rights and privileges of owning a unit include voting and receipt of dividends, . . . priority vis-à-vis other units, and restrictions include limitations on sale. None of those terms bring to mind resolution of disputes by arbitration. Similarly, the terms representations and warranties include factual statements, but do not cover resolution of disputes by arbitration."

The court also determined the operating agreement was not known to Goldman, nor " 'easily available' " to her, when she signed the purchase agreements. As the courtexplained, there was no evidence Goldman "knew that the Operating Agreement had been sent to [Millennium] Trust. More importantly, the sole role of [Millennium] Trust in the purchase transactions was as a custodian of . . . Goldman's IRA. There is no evidence that [Millennium] Trust assumed any role with regard to advising . . . Goldman about the Purchase Agreements or the Operating Agreement, much less any role regarding dispute resolution or arbitration language."

Finally, the court determined defendants waived their right to arbitrate "even if the arbitration language of the Operating Agreement was incorporated into the Purchase Agreement." It noted defendants answered the complaint, filed a case management statement requesting a jury trial, and did not move to compel arbitration until April 2017. According to the court, "[t]hese circumstances warrant a finding of waiver, especially given the undisputed fact that . . . Goldman and her counsel had no knowledge that defendants contended that the arbitration language of the Operating Agreement was incorporated into the Purchase Agreements or that defendants intended to seek to compel arbitration until April 2017. . . . [D]efendants' decision to seek arbitration was made by their new counsel . . . . New counsel's determination that their clients have a right to arbitrate after the clients had never claimed such a right until shortly before a jury trial is not a satisfactory excuse for [their] unreasonable delay in seeking arbitration. . . . Goldman suffered substantial prejudice by defendants' unwarranted delay in seeking arbitration because she was required to prepare for a jury trial, which involves different rules and different methods of preparation than an arbitration."

DISCUSSION

" '[T]he threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.' " (Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396, italics omitted.) Defendants have the burden of proving the existence of an agreement...