Segal v. Silberstein

• Decision Date: 29 October 2007
• Docket Number: No. B191303.,B191303.
• Citation: 67 Cal.Rptr.3d 426,156 Cal.App.4th 627
• Court: California Court of Appeals Court of Appeals
• Parties: Richard SEGAL et al., Plaintiffs and Respondents, v. David SILBERSTEIN et al., Defendants and Appellants.

67 Cal.Rptr.3d 426

156 Cal.App.4th 627

Richard SEGAL et al., Plaintiffs and Respondents, v. David SILBERSTEIN et al., Defendants and Appellants.

No. B191303.

Court of Appeal, Second District, Division 8.

October 29, 2007.

Rintala, Smoot, Jaenicke & Rees, and Michael B. Garfinkel, Los Angeles, for Defendants and Appellants.

No appearance for Plaintiffs and Respondents.

RUBIN, J.

Defendants David, Sandra, Michael, and Lisa Silberstein appeal from the trial court order denying their petition to compel arbitration of claims raised in Richard Segal's complaint alleging breach of contract and breach of fiduciary duty in connection with the parties' real estate acquisition and development joint venture. Because the operating agreements of the parties' business entities require arbitration, we reverse.

FACTS AND PROCEDURAL HISTORY

Richard Segal sued David Silberstein, alleging that Silberstein breached their oral joint venture' agreement to split the profits from their business. The complaint alleged that pursuant to the joint venture agreement, Segal and Silberstein formed several business entities to buy, develop, and manage real property, including Chapman Summit (Chapman), Double S Development (Double S), BSG Financial (BSG), Sage Village, and Adventure Development. Segal alleged that Silberstein and several companies that were Silberstein's alter ego tried to hide, divert, fraudulently transfer, and otherwise take control of the assets and profits "of the aforementioned entities."¹

The complaint's first cause of action was by Segal against Silberstein for breach of their oral joint venture agreement by failing to account for, and by improperly diverting or assuming control over, the assets, income, and profits "of the aforementioned entities." The second cause of action, which incorporated all previous allegations, sought declaratory and injunctive relief as to all defendants.² It alleged that Silberstein took the following improper actions: refused to pay back loans made by plaintiffs "to the various entities;" wrongfully transferred assets of jointly owned entities to entities under his control; and wrongly disputed that David Silberstein owes capital contributions to the "jointly-formed entities." Based on those allegations, the complaint sought a judicial determination of the parties' rights "as to the management and operation of the entities, ... [including] the ownership percentage interest of Plaintiffs and Defendants, and each of them, in each entity listed hereinabove." Such a declaration was necessary, the complaint alleged, because plaintiffs were being denied their proper shares of, and interests in, "the various entities."

The third cause of action named all the defendants and sought an accounting for the wrongfully diverted funds and assets previously described. The fourth cause of action was by Segal against Silberstein for constructive fraud and breach of fiduciary duty based on the previous allegations. The seventh cause of action was by Segal against all defendants for a constructive trust due to the allegedly wrongful acquisition by Silberstein's alter ego companies and family members of the assets of the business entities. The tenth cause of action was "by Segal against all defendants and asked to set aside the transfers of various assets that Segal alleged were made in order to defraud him and other shareholders, investors, or creditors. The remaining eight causes of action are similar, but focus on wrongful conduct as to the assets and profits of defendants BSG, Double S, and Sage Village.

The Silbersteins brought a petition to compel arbitration of the claims raised in Segal's complaint. (Code Civ. Proc, § 1281.2.)³ The motion was supported by the operating agreements of three of the business entities formed pursuant to the joint venture agreement—Chapman, BSG, and Double S. The three operating agreements were virtually identical. Each called for the formation of a real estate investment entity that required its members to make capital contributions in a designated amount. Profits would be split according to each member's percentage interest in the company, the companies' assets would be held in the name of each company, and accounts and records concerning company business would be maintained.

Each operating agreement contained an arbitration provision. The Chapman arbitration provision said: "Any action to enforce or interpret this Agreement or to resolve disputes between the Members or by or against any Member shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Arbitration shall be the exclusive dispute resolution process in the State of California, but arbitration shall be a nonexclusive process elsewhere. Any party may commence arbitration by sending a written demand for arbitration to the other parties. Such demand shall set forth the nature of the matter to be resolved by arbitration. Arbitration shall be conducted at Los Angeles, California. The substantive law of the State of California shall be applied by the arbitrator to the resolution of the dispute. The parties shall share equally all initial costs of arbitration. The prevailing party shall be entitled to reimbursement of attorney fees, costs, and expenses incurred in connection with the arbitration. All decisions of the arbitrator shall be final, binding, and conclusive on all parties. Judgment may be entered upon any such decision in accordance with applicable law in any court having jurisdiction thereof." (Italics added.)

The Double S and BSG arbitration provisions were identical except that they said arbitration was the exclusive dispute resolution process in Texas but not elsewhere, and that Texas law applied to resolving disputes. The Double S provision required a Texas arbitration to be held in San Antonio and the BSG provision required a Texas arbitration to be held in Houston. The Silbersteins argued to the trial court that arbitration was required by those three provisions.

Segal opposed the petition on the following grounds: (1) because the BSG and Double S agreements specified that arbitration was the exclusive process in Texas only, but was the nonexclusive process elsewhere, that meant arbitration was optional only and not required in California; (2) the Chapman agreement, which made arbitration the exclusive dispute resolution process in California, did not apply because Chapman was not a named party to the action and because the allegations of Segal's complaint did not raise any issues or disputes concerning Chapman; (3) an order compelling arbitration would be improper as to the Chapman agreement because Chapman and Silberstein were defendants in another pending action, raising the specter of conflicting rulings (§ 1281.2, subd. (c)); and (4) Silberstein waived his arbitration rights under the Chapman agreement by appearing in the other pending action instead of petitioning to compel arbitration.⁴

The trial court agreed with Segal and denied the petition to compel arbitration. The Silbersteins have appealed.⁵

DISCUSSION

1. Applicable Law and Standard of Review

The BSG and Double S agreements require that those agreements be construed and enforced in accordance with Texas law. Neither party raised the choice of law issue below, however, relying instead on California law. On appeal, Silberstein continues to rely on California law and, as noted earlier, Segal has not filed a respondent's brief on appeal. We therefore deem the issue waived and will apply California law. (Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099, fn. 3, 118 Cal.Rptr .2d 862; compare Liberty Mutual Ins. Co. v. Superior Court (1997) 58 Cal. App.4th 617, 624, 68 Cal.Rptr.2d 219 [choice of law issue not waived where party expressly stated he did not waive the issue and was reserving it].)⁶

One party to an arbitration agreement may petition the court to compel other parties to arbitrate a dispute that is covered by their agreement. (§ 1281.2.) Section 1281.2 creates a summary proceeding for determining whether the parties should be ordered to arbitrate. The petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence. The opposing party must meet the same evidentiary burden to prove facts necessary to its defense. The trial court acts as the trier of fact, weighing all the evidence. Because there is no conflicting evidence regarding the interpretation of the arbitration agreements at issue here, we exercise our independent judgment to determine as a matter of law under the rules of contract interpretation whether those agreements apply.⁷ (Provencio v. WMA Securities, Inc. (2005) 125 Cal.App.4th 1028, 1030-1031, 23 Cal.Rptr.3d 524.)

When interpreting contracts, the language used controls if it is clear and explicit. We must view the language of a contract as a whole, avoiding a piecemeal, strict construction approach. If possible, we should give effect to every provision and avoid rendering any part of an agreement surplusage. Where an agreement is capable of being interpreted in two ways, we should construe it in order to make the agreement "`lawful, operative, definite, reasonable and capable of being carried into effect and avoid an interpretation which will make the instrument extraordinary, harsh, unjust, inequitable or which would result in absurdity. [Citations.]' [Citation.]" (City of El Cajon v. El Cajon Police Officers' Assn. (1996) 49 Cal. App.4th 64, 71, 56 Cal.Rptr.2d 723.) Because of California's public policy that generally favors arbitration, we will uphold arbitration unless we can say with assurance that an arbitration clause cannot reasonably be interpreted to cover a dispute or otherwise cannot be enforced. (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686, 99 Cal.Rptr.2d 809.)

2. Arbitration Is Mandatory Under the BSG and Double S Agreements

Even...