JSM Tuscany, LLC v. Superior Court of L.A. Cnty.

• Decision Date: 29 March 2011
• Docket Number: No. B227360.,B227360.
• Parties: JSM TUSCANY, LLC, et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondents; NMS Properties, Inc., et al., Real Parties in Interest.
• Court: California Court of Appeals Court of Appeals

193 Cal.App.4th 1222

123 Cal.Rptr.3d 429

11 Cal. Daily Op. Serv. 3837

2011 Daily Journal D.A.R. 4585

JSM TUSCANY, LLC, et al., Petitioners,

v.The SUPERIOR COURT of Los Angeles County, Respondents;

NMS Properties, Inc., et al., Real Parties in Interest.

No. B227360.

Court of Appeal, Second District, Division 3, California.

March 29, 2011.

Tourtelot & Butler and Robert H. Tourtelot, Los Angeles, for Petitioners.

No appearance for Respondents.

Manly & Stewart, John C. Manly and Morgan A. Stewart, Newport Beach, for Plaintiffs and Real Parties in Interest.

CROSKEY, Acting P.J.

In these writ proceedings, we consider the trial court's denial, without prejudice, of petitioners' ¹ motion to compel arbitration pursuant to the provisions of three separate, but substantially identical, real estate purchase contracts. Petitioners are twelve of the twenty-seven defendants named in the first amended complaint (the operative pleading before us) filed by the four plaintiffs, N. Neil Skekhter; NMS Properties, Inc.; 15394 NM, LLC; and NMS/JSM San Lorenzo, LLC.²

Plaintiffs' complaint, although pleading some sixteen causes of action, essentially seeks recovery of damages and other relief from the several defendants for their breach of the three real estate sales contracts (hereinafter, PSAs) and the failure of some of the defendants to meet the requirements of three related Deed Restriction agreements that those defendants had entered into with the City of Santa Monica, and as to one of which two of the plaintiffs, 15394 NM and NMS/JSM San Lorenzo, claim to be third-party beneficiaries.

The three PSAs each contained a broad arbitration clause which the petitioners moved to enforce. The trial court denied the motion to compel arbitration on the grounds that not all of the plaintiffs and only a small number of the defendants were actually signatories to the PSAs. In addition, the Deed Restriction agreements entered into by several of the defendants and the City of Santa Monica contained no arbitration clause, and the trial court concluded that those agreements were not dependent on or intertwined with the PSAs, thus giving rise to non-arbitrable disputes.

After reviewing the record in this factually complex matter, we conclude that the trial court did not have before it sufficient information to determine whether plaintiffs should be compelled to arbitrate and therefore properly denied the motion to compel without prejudice. We will therefore deny the petition and remand the matter with directions.

FACTUAL AND PROCEDURAL BACKGROUND³

Preliminarily, we note that while, in broad outlines, this case appears to be a dispute between Jones and Jones-related entities on one side and Shekhter and Shekhter-related entities on the other, this is not necessarily the case. The Jones-related entities generally include “ JSM” in their names, while the Shekhter-related entities begin with “NMS.” One of the plaintiffs, however, is named NMS/JSM San Lorenzo, a name which suggests that, perhaps, at one point, Jones and Shekhter may have been in business together.[fn4] IN ANY EVENT, IT Is apparent that the nms/jsm san lorENZO ENTITY is now aligned with Shekhter and the other Shekhter-related plaintiffs.

At approximately the same time, Jones contracted to sell to Shekhter, for $4,000,000, a “deed restricted” affordable housing apartment building in the City. The contract was originally dated November 11, 2004, and pertained to the sale of “1244 [Sixth] Street, or, in the sole discretion of Seller, such other property reasonably comparable in size and location developed by Seller [with a deed restricted affordable housing apartment building].” On or about September 15, 2005, the agreement was amended to designate the property to be sold as the property located at 711 Colorado. Pursuant to the 711 Colorado PSA, Shekhter paid a $500,000 deposit toward the total purchase price of $4,000,000. The PSA provided that Jones was to develop and construct a low-income deed restricted apartment building on the 711 Colorado property, and that escrow would close on the sale to Shekhter within 60 days after the City issued a certificate of occupancy for the project.

JSM Construction then agreed with the City that it would satisfy its affordable housing requirements with respect to the properties at 626 Broadway, 1548 Sixth Street, 1418 Seventh Street, and 1539 Fourth Street, by constructing the necessary amount of affordable housing units at 711 Colorado. Pursuant to the City's requirements, a deed restriction was to be recorded on the property to insure that the off-site affordable housing units would be maintained for 55 years.

JSM Construction's agreement with the City was memorialized in a Deed Restriction agreement dated April 2, 2007.⁶ Pursuant to the Deed Restriction agreement, JSM Construction and JSM Modena, the Jones-related entity which, by this time, owned 711 Colorado, agreed to “provide and maintain” 26 affordable housing units on the 711 Colorado property. However, the Deed Restriction agreement did not set forth any particular schedule for performance; it did not indicate when (if ever) the affordable housing units would be built. Instead, the Deed Restriction agreement provided that it ran with the property, and would “apply to and bind the heirs, successors and assigns of all the parties hereto and shall run with and burden the 711 Colorado Property for the benefit of the City, the public, and surrounding landowners.... [JSM Modena] shall expressly make the conditions and covenants contained in this Agreement a part of any deed or other instrument conveying any interest in the property.”

By this Deed Restriction agreement, JSM Construction was permitted to develop the four properties at 626 Broadway, 1548 Sixth Street, 1418 Seventh Street, and 1539 Fourth Street as market-rate rental apartment buildings, as the City's requirements relating to affordable housing were to be satisfied by the affordable housing to be constructed on JSM Modena's property at 711 Colorado. For this reason, we refer to the four properties as the Modena-benefitted properties, and 711 Colorado as the Modena affordable housing property. Two of the Modena-benefitted properties, 1548 Sixth Street and 1539 Fourth Street, are now owned by two (Shekhter-related) plaintiffs in this case, NMS/JSM San Lorenzo and 15394 NM, respectively. The remaining two Modena-benefitted properties are owned by Jones-related entities (JSM Lugano and JSM Genoa). ⁷ The record does not indicate how or when the Shekhter-related plaintiffs became owners of two of the Modena-benefitted properties.⁸

The affordable housing project was never constructed on the 711 Colorado property; the parties eventually agreed that the cost of construction would exceed the $4,000,000 original purchase price. On May 18, 2009, the parties entered into an amendment and assignment of the PSA. The amendment indicated that the sellers were now Jones and JSM Modena, while the buyer became Shekhter-related entity (and plaintiff) NMS Properties. Pursuant to the terms of the amendment, Jones would no longer construct the affordable housing project on 711 Colorado. Instead, the property to be conveyed would consist of the property itself, all plans and specifications for the construction of the affordable housing project, any development rights related to the development project, and Jones's rights under agreements with architects, engineers, and consultants regarding the project. The purchase price was to consist solely of buyer's assumption of a note (and security documents) on the property, and the $500,000 deposit was to be refunded at closing. Moreover, the parties would subsequently agree on a payment to be made by sellers to buyer to cover the costs of construction in excess of the original purchase price. Escrow was to close within five days of buyer giving notice that it was prepared to close, but not later than November 1, 2009.

We pause at this moment for two important points. First, the amendment indicates that, if there was no agreement reached on the amount of the excess costs to be paid by the sellers, the buyer could unilaterally terminate the terms of amendment, which would reinstate the terms of the initial agreement. There is no allegation, or evidence, that this was done. Instead, plaintiffs filed suit on the PSA as amended. Second, as expressed above, the Deed Restriction ran with the land. Thus, it was apparently contemplated at this point that NMS Properties, as the future owner of 711 Colorado, would be responsible for constructing the affordable housing project on that property in accordance with the Deed Restriction.

We have set forth the factual history of this dispute with regard to the 711 Colorado property. The dispute repeated with respect to two additional parcels, with one important difference: none of the properties benefitted by the other contemplated affordable housing projects are owned by plaintiffs; instead, they are all owned by defendants. We discuss these properties briefly.

In November 2004, Jones agreed to sell to Shekhter the property at 1514 Seventh Street (which, before the transfer, became owned by JSM Tuscany) on which there was to be constructed a deed restricted affordable housing project, for $3,750,000, including a $500,000 deposit. On March 15, 2007, JSM Construction and JSM Tuscany entered into a Deed Restriction agreement with the City similar in terms to the Modena Deed Restriction. In this case, the four Tuscany-benefitted projects were located at 606 Broadway, 1420 Fifth Street, 1442 Fifth Street, and 507 Wilshire Boulevard. These projects are all owned by Jones-related entities, JSM Positano, JSM San Marco and JSM Arrezo.⁹ On May 18, 2009, the 1514 Seventh (Tuscany) PSA was amended in terms virtually identical to that of the 711 Colorado (Modena) PSA—the sellers were now Jones and JSM Tuscany; the buyer was now NMS Properties; the property to be conveyed was...