J.H. Boyd Enters., Inc. v. Boyd

Decision Date23 August 2019
Docket NumberF078292
Citation39 Cal.App.5th 802,252 Cal.Rptr.3d 360
CourtCalifornia Court of Appeals Court of Appeals
Parties J.H. BOYD ENTERPRISES, INC., Plaintiff and Respondent, v. Kenneth Robert BOYD, Individually and as Trustee, etc., et al., Defendants and Appellants.

Certified for Partial Publication.*

Quall Cardot, Matthew W. Quall and Matthew R. Dardenne for Defendants and Appellants.

McCormick, Barstow, Sheppard, Wayte & Carruth, Scott M. Reddie, Fresno; Whitney, Thompson & Jeffcoach and Timothy L. Thompson for Plaintiff and Respondent.

DE SANTOS, J.

Kenneth Robert Boyd (Ken) and Susan K. Boyd (Susan), individually and as Trustees of the Boyd Trust dated December 23, 1999 (the Boyd Trust) (collectively, appellants) appeal from an order denying their motion to compel arbitration or, in the alternative, motion for judicial reference. Appellants sought to compel arbitration, or judicial reference, of claims J.H. Boyd Enterprises, Inc. (JHBE) brought against them for judicial foreclosure and declaratory relief related to a promissory note JHBE entered into with the Boyd Trust, which was secured by a deed of trust. We affirm the order denying appellants' motion to compel arbitration and, because an order denying judicial reference is not an appealable order, we grant JHBE's motion to dismiss that portion of the appeal.

FACTUAL AND PROCEDURAL BACKGROUND

Ken and Susan are the settlors, beneficiaries and trustees of the Boyd Trust. JHBE is a California corporation originally created, owned, and operated by Ken's father, Joseph Haig Boyd (J.H.), who passed away in March 2015. In 2014, J.H. turned the day-to-day operations of JHBE over to his daughter, Martha Marsh (Martha), who is the president and chairperson of JHBE's board of directors. Upon J.H.'s death, Martha, together with her husband and sister, became the majority owners of JHBE, while Ken became a "frozen-out minority owner."

The Promissory Note

In May 2008, the Boyd Trust borrowed $2 million from JHBE.1 Ken and Susan executed a $2 million promissory note (the note) on behalf of the Boyd Trust, as well as a deed of trust secured by real property located on Modoc Avenue in Kerman (the property). The note, which JHBE drafted, provides for specific monthly payments, with the outstanding balance due in full on May 15, 2018.

The note contains a provision entitled "Governing Law," which states, in pertinent part: "This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions."

The note also contains a section entitled "Arbitration Agreement."2 Next to the heading "Arbitration – Binding Arbitration," the note states: "Lender and each party to this agreement hereby agree, upon demand by any party, to submit any Dispute to binding arbitration in accordance with the terms of this Arbitration Program. A ‘Dispute’ shall include any dispute, claim or controversy of any kind, whether in contract or in tort, Legal or equitable, now existing or hereafter arising, relating in any way to this Agreement or any related agreement incorporating this Arbitration Program (the ‘Documents’), or any past, present, or future loans, transactions, contracts, agreements, relationships, incidents or injuries of any kind whatsoever relating to or involving Business Banking, Regional Banking, or any successor group or department of Lender. DISPUTES SUBMITTED TO ARBITRATION ARE NOT RESOLVED IN COURT BY A JUDGE OR JURY."

The "Arbitration Agreement" contains six subparagraphs lettered A through F.3 The "Governing Rules" contained in paragraph A provide in pertinent part: "Any arbitration proceeding will (i) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (ii) be conducted by the AAA (American Arbitration Association) ...." Paragraph B provides the "arbitration requirement" does not limit any party's right to foreclose against real or personal property collateral, but "[t]his exclusion does not constitute a waiver of the right or obligation of any party to submit any Dispute to arbitration or reference hereunder...."

Paragraph F contains five "State-Specific Provisions," which apply when that state's law "governs the Dispute."4 As pertinent here, the California provision states: "If California law governs the Dispute, the following provision is included. Real Property Collateral; Judicial Reference: Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless the holder of the mortgage, lien or security interest specifically elects in writing to proceed with arbitration. If any such Dispute is not submitted to arbitration, the Dispute shall, at the election of any party, be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645."

JHBE's Complaint

In March 2018,5 the note's outstanding balance was over $1.5 million. On March 14, Ken sent JHBE a letter stating he was tendering payment in full on the note through the transfer to JHBE of JHBE stock, which was held by him and other individuals. Ken also offered to pay off the debt the Boyd Trust owed JHBE on a second $2.5 million promissory note through the transfer of JHBE stock. Thereafter, the attorneys for JHBE and the Boyd Trust exchanged a series of letters concerning the payoff of the note. Appellants took the position they made valid tenders to pay the outstanding balance, which JHBE unreasonably rejected, while JHBE believed appellants' tenders were defective.

Eventually, the Boyd Trust demanded the matter be submitted to arbitration, as JHBE's failure to accept the Boyd Trust's tender of payment created a "dispute" under the note. JHBE refused the demand, in part, because it had not elected to proceed with arbitration as provided in paragraph F of the arbitration clause.

The parties were unable to resolve their dispute and on May 22, JHBE declared the note in default. On June 20, JHBE filed a complaint against appellants for judicial foreclosure and declaratory relief. In its cause of action for judicial foreclosure, JHBE asked for compensatory damages in the form of the balance due on the note, a late charge, costs and attorney fees, and an order that the deed of trust be foreclosed. In its declaratory relief cause of action, JHBE asked for a declaration that the Boyd Trust's tenders of payment were not valid or legally enforceable, JHBE did not breach the note, and the Boyd Trust defaulted on the note as of May 16.

The Motion to Compel Arbitration

In lieu of answering the complaint, appellants filed a motion to compel arbitration pursuant to Code of Civil Procedure sections 1281.2, 1281.4, and 1281.7,6 or, in the alternative, to appoint a referee pursuant to section 638 et seq., and to either dismiss or stay this proceeding. Appellants supported the motion with a memorandum of points and authorities, a request for judicial notice of the complaint, and Ken's declaration.

Appellants asserted the note contained a valid and enforceable agreement to arbitrate, which did not provide any "carve outs, exceptions or limitations" exempting the causes of action alleged in the complaint from arbitration. Appellants argued that because "[t]his dispute is subject to a binding and enforceable agreement to arbitrate governed by the Federal Arbitration Act ...[,] federal law governs the dispute and is determinative of the forum in which that dispute must be decided, even if state law governs the subject matter of the claims." Appellants reasoned that since the dispute was governed by federal law, not California law, as stated in the "Governing Law" and arbitration clause, the catch-all provision in paragraph F did not apply and JHBE must be compelled to submit to binding arbitration. Appellants alternatively argued that even if California, not federal, law governed the dispute, JHBE must submit the dispute to judicial reference in accordance with section 638 et seq.

JHBE opposed the motion on the ground it was not required to arbitrate the parties' dispute under paragraph F. JHBE argued paragraph F applied because (1) California, not federal, law applied to the state law claims asserted in the complaint, and (2) the parties' dispute involved a note secured by real property. Therefore, arbitration was required only if JHBE elected to arbitrate the dispute. Since JHBE elected to forgo arbitration, the trial court should deny the motion to compel arbitration.

JHBE also argued the motion should be denied to the extent it sought to send the dispute to judicial reference as the same issue, namely, whether appellants made a valid tender to pay the balance due on the note, was being litigated in the following probate matters pending in the probate division of Fresno County Superior Court: (1) In re The J.H. Boyd Irrevocable Trust, dated July 20, 2012, Fresno County Superior Court case No. 18CEPR00919; and (2) In re The Joseph Haig Boyd Living Trust, dated May 30, 1991, as later amended, Fresno County Superior Court case No. 18CEPR00920. JHBE argued there was a risk of inconsistent legal and factual rulings regarding the validity of appellants' alleged tenders to JHBE, and judicial economy would be served by hearing all three related cases together. JHBE asked the trial court to take...

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    ...of stay affects the order appealed from and substantially affects the rights of the appellant. ( J.H. Boyd Enterprises, Inc. v. Boyd (2019) 39 Cal.App.5th 802, 811–812, 252 Cal.Rptr.3d 360.) A trial court's decision whether to stay an action at law when a controversy has been ordered to arb......
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    ...of stay affects the order appealed from and substantially affects the rights of the appellant. ( J.H. Boyd Enterprises, Inc. v. Boyd (2019) 39 Cal.App.5th 802, 811–812, 252 Cal.Rptr.3d 360.) A trial court's decision whether to stay an action at law when a controversy has been ordered to arb......
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