Kokubu v. Sudo

• Decision Date: 30 March 2022
• Docket Number: B310220
• Citation: Kokubu v. Sudo, 76 Cal.App.5th 1074, 292 Cal.Rptr.3d 164 (Cal. App. 2022)
• Parties: Akira KOKUBU, Plaintiff, Cross-defendant and Respondent, v. Takashi SUDO et al., Defendants, Cross-defendants and Respondents; Park Rolling Hills, LLC, et al., Defendants, Cross-complainants and Appellants.
• Court: California Court of Appeals

76 Cal.App.5th 1074

292 Cal.Rptr.3d 164

Akira KOKUBU, Plaintiff, Cross-defendant and Respondent,

v.Takashi SUDO et al., Defendants, Cross-defendants and Respondents;

Park Rolling Hills, LLC, et al., Defendants, Cross-complainants and Appellants.

B310220

Court of Appeal, Second District, Division 8, California.

Filed March 30, 2022

Baker, Burton & Lundy, Albro Lundy and Evan R. Koch, Hermosa Beach, for Defendants, Cross-complainants, Cross-defendants and Appellants.

Chassman & Seelig, and Mark B. Chassman, Los Angeles, for Plaintiff, Cross-defendant and Respondent.

Leago Law Group, and Gina A. Leago, Los Angeles, for Defendants, Cross-complainants, Cross-defendants and Respondents.

HARUTUNIAN, J.^*

INTRODUCTION

This appeal arises out of a dispute between several investors, whose best-laid plans to exploit a Japanese tax incentive promoting wood frame construction has left them fighting about their respective rights in a decades-old office complex in Los Angeles County.

Appellants¹ were some of the defendants below. Respondents² include three other defendants, plus the plaintiff (Kokubu).

Appellants seek reversal of the trial court's order denying their motion to compel arbitration, which they filed more than two years after the lawsuit began. The trial court denied the motion on the basis that Appellants had waived their right to arbitrate by unreasonably delaying their motion, taking actions inconsistent with the right to arbitrate, and depriving Respondents the benefits of arbitration. It also found that the third-party arbitration exception applied, independently warranting denial of the motion. Appellants contend, in relevant part, that: (1) waiver may be found only where the non-movant is prejudiced; (2) the type of prejudice Respondents suffered is inadequate as a matter of law; and (3) Appellants did not act unreasonably or in a manner inconsistent with the right to arbitrate in delaying their motion to compel. We disagree and affirm.³

BACKGROUND

Respondents (who the parties refer to as the "Japanese Investors") and two of the Appellants (who the parties refer to, with certain of their affiliates, as the "US Investors") purchased the property in 2006.⁴ The purchase was financed, in part, by a $4 million commercial loan secured by a deed of trust. The grant deed reflected ownership by the Respondents, in the aggregate, of 99.01 percent, with Appellants holding the remaining 0.99 percent. A tenancy-in-common agreement (TIC 1) and master lease agreement (MLA 1) entered into at closing afforded the various owners proportionate economic interests that differed from their respective record title shares. The differences between their proportionate economic and title shares were the product of the parties’ efforts to maximize the tax benefits to the Japanese investors.

Two years after buying it, Appellants and Respondents refinanced the property with a new $4 million loan from JPMorgan Chase Bank, N.A. (JP Morgan). In connection with the refinance, Respondents contend that they and Appellants entered into a new tenancy-in-common agreement (TIC 2) and a new master lease agreement (MLA 2). Appellants contend that their signatures on those documents are fraudulent.

The dispute over whether the TIC 1 or TIC 2 was operative arose in 2018 in connection with discussions over the sale or refinancing of the property. Appellants maintained that the TIC 1, which entitled them to 49.01 percent of any net sale proceeds, continued to govern, whereas Respondents took the position that the TIC 2 controlled, which would afford Appellants just 0.99 percent of any net sale proceeds.

The economic interests remained unresolved as of the scheduled maturity of the JP Morgan loan. As a result, the Respondents and Appellants defaulted on the loan. JP Morgan issued a notice of default in November 2018 and the Respondents and Appellants failed to cure.

Immediately after the November 2018 default, Respondent Kokubu (the original plaintiff) filed a complaint against Appellants, the other Respondents, and JP Morgan for partition by sale, thereby commencing the action below. Two months later, Kokubu recorded a notice of lis pendens against the property.

In January 2019, Appellants filed a demurrer to Kokubu's complaint. Kokubu filed a first amended complaint in April expanding on his allegations to support the sole partition count. This prompted Appellants to withdraw their demurrer in April and then answer in May. In their answer, Appellants asserted a right to arbitration as an affirmative defense.

In June of 2019, the trustee under the JP Morgan deed of trust noticed a foreclosure sale for the following month. Though the urgency of the threatened sale prompted further discussions between the two sides, they failed to reach an accord.

Just six days before the scheduled trustee's sale, Appellants filed a cross-complaint against Respondents for fraud, breach of contract, concealment, constructive trust, and injunctive relief. They also cross-complained against JP Morgan only for injunctive relief to enjoin the foreclosure sale.

The same day as they filed their cross-complaint, Appellants made a demand for arbitration on Respondents under section 33 of the MLA 1. Appellants contend that they simultaneously sought a stay of the proceedings to permit arbitration. However, this assertion is not supported by the record. Four days after filing their cross-complaint, Appellants filed an ex parte application to enjoin the trustee's sale for one-hundred and fifty days, explaining that such postponement would "permit the parties to resolve the underlying via arbitration." We find no indication in the record that Appellants sought to stay the court proceedings en toto in order to permit arbitration.

The trial court declined to enjoin the trustee's sale but directed the trustee to hold any net proceeds in a blocked account. The sale went forward on July 25, 2019, and Appellant BFP purchased the property for a penny more than the amount necessary to discharge JP Morgan's lien.

When Respondents learned of the result of the trustee's sale, they demanded that Appellant BFP acknowledge their rights in the property. BFP ignored them. On August 2, 2019, Respondents sought an ex parte order prohibiting BFP from transferring the property. However, by the time the matter was heard, BFP had already transferred the property to an affiliate.

On August 6, 2019, Appellants filed a case management statement in the trial court on mandatory form CM-110. Among other things, they demanded a jury trial for their fraud cross-claim, estimated that trial would take seven to ten days, proposed discovery cutoff dates, and provided attorney availability for trial. In section 10.c, where instructed to indicate the ADR processes they were "willing to participate in" or "have agreed to participate in," Appellants checked "Mediation" and "Settlement conference" but not "Binding private arbitration." Appellants did separately note that they had "demanded arbitration pursuant to the terms of the [MLA 1]." Later that day, however, Appellants withdrew their demand for arbitration via email to counsel for the Respondents.

The following day, Respondents Sudo, Hamamoto, and JI filed a cross-complaint against Appellants and certain of their affiliates asserting claims including breach of fiduciary duty, fraud, and breach of contract. Also, Sudo, Hamamoto, JI, and certain non-parties filed, and then withdrew, a lis pendens against the property, which Sudo and Hamamoto subsequently refiled.

From the time Appellants withdrew their arbitration demand in August of 2019 until December of 2020, the litigation proceeded without any outward indication that Appellants intended to arbitrate. Indeed, when they filed their October 2019 case management statement, they maintained their jury trial requests, discovery schedule proposals, and non-arbitration ADR preferences from their August 2019 statement, but dropped any reference to their demand to arbitrate. In the intervening months, Appellants refined their pleadings, answered pleadings, sought relief, opposed relief, responded to discovery, and served (and sought to compel responses to) their own discovery demands. Included in this litigation activity were three separate motions to expunge the lis pendens against the property, the first of which was filed on August 23, 2019, and the last of which was granted (subject to a bond condition Appellants declined to fulfill) on June 24, 2020.

Shortly after the order on the lis pendens, in July 2020, Respondent Kokubu filed a motion for summary adjudication (MSA) of his fraudulent conveyance and partition counts and set the hearing for November 2020. Appellants responded with document requests and deposition notices for mid-August and early September, specifying that the depositions would be taken remotely. The day before the depositions were set to begin, Appellants took them off calendar, explaining that they needed in-person depositions (despite their earlier contrary position) and expressed hope that they could be completed "at some point next year." Weeks after their depositions were originally scheduled to have been completed, Appellants moved ex parte to continue the hearing on the MSA, as well as the trial date, to permit in-person depositions. The court granted the motion and moved the MSA hearing to January 2021 and the trial to July 2021.

At the end of October, Appellants served new notices for depositions in November and December 2020. Ultimately, the first of these was scheduled to go forward on December 9, 2020. However, on December 7, 2020, Appellants filed their motion to compel arbitration and related motion to stay the proceedings. The following day, Appellants again unilaterally took the depositions off calendar the day before the first was set to go forward.

On January 8, 2021, the trial court denied the motion to compel arbitration. Its decision rested on two grounds. First, it concluded that Appellants...