Seidman & Seidman v. Wolfson

• Decision Date: 24 July 1975
• Citation: 50 Cal.App.3d 826,123 Cal.Rptr. 873
• Court: California Court of Appeals
• Parties: SEIDMAN & SEIDMAN, a partnership, Plaintiffs, Cross-Defendants, and Appellants, v. Phillip J. WOLFSON, Defendant, Cross-Complainant, and Respondent, Julian S. H. Weiner, Defendant and Respondent. Civ. 44542.

Page 873

123 Cal.Rptr. 873

50 Cal.App.3d 826

SEIDMAN & SEIDMAN, a partnership, Plaintiffs, Cross-Defendants, and Appellants, v. Phillip J. WOLFSON, Defendant, Cross-Complainant, and Respondent Julian S. H. Weiner, Defendant and Respondent.

Civ. 44542.

Court of Appeal, Second District, Division 2, California.

July 24, 1975.

Hearing Denied Sept. 24, 1975.

Latham & Watkins, Bruce R. Lederman and John J. Bentley, III, Los Angeles, for plaintiffs, cross-defendants, and appellants.

Fischmann & Wallerstein, B. Wallace Fischmann and Robert Z. Walker, Los Angeles, for Phillip J. Wolfson.

No appearance for Julian S. H. Weiner.

BEACH, Associate Justice.

Seidman & Seidman, a partnership of certified public accountants, sued Phillip J. Wolfson and Julian S. H. Weiner, who had combined their accounting practice (Wolfson, Weiner, Ratoff & Lapin) with that of plaintiff and has become partners in Seidman & Seidman. Allegedly the largest client of defendants' firm was Equity Funding Corporation of America ('Equity Funding'), which had been represented as a 'prosperous, prestigious, dynamically growing corporate concern in excellent financial condition.' Defendants did not reveal to plaintiff the true nature of Equity Funding, whose assets and income had been fraudulently overstated for several years. In its first amended complaint, Seidman & Seidman sued for accounting and restitution based on rescission for material misrepresentation; accounting and restitution based on rescission for mutual mistake; declaratory judgment of rescission; declaratory judgment of right to indemnity; injunction against defendant Weiner for arbitration started in New York under a contract that allegedly has been rescinded; injunction against defendant Weiner against same arbitration to prevent a multiplicity of actions.

In the preliminary stages of the above lawsuit, the trial court entered four orders from which plaintiff now appeals. The minute order dated April 23, 1974, denied plaintiff's motion for a preliminary injunction against defendant Weiner. An order on June 17, 1974, granted defendant Weiner's motion to stay proceedings on plaintiff's complaint pending the outcome of arbitration commenced by Weiner in New York; another order on June 17, 1974, denied plaintiff's motion to reconsider the April 23 order denying plaintiff's motion for a preliminary injunction against defendant Weiner. A minute order dated June 18, 1974, denied plaintiff's petition for an order compelling defendant Wolfson to arbitrate.

CONTENTIONS ON APPEAL:

1. The trial court erred in its April 23 order in holding that appellant was not entitled to a court determination as to the validity of the agreements before appellant could be forced to arbitrate them; California law should apply.

2. The April 23 order denying appellant's motion for a preliminary injunction restraining Weiner from continuing with the New York arbitration was based on erroneous conclusions of law and amounted to an abuse of discretion.

3. There was no substantial evidence to support the trial court's June 18 finding that appellant had waived its right to arbitration with Wolfson under the circumstances of this case.

4. In granting Weiner's motion to stay proceedings as to Weiner alone on appellant's first amended complaint, the trial court permitted Weiner to avoid the policy and procedures of California law and thereby abused its discretion.

DISCUSSION

1. The trial court properly decided that New York law applies and did not abuse its discretion in denying appellant's motion to restrain Weiner's New York arbitration proceedings.

The combination agreement between appellant and respondents provided: 'The provisions for arbitration of any controversy or dispute contained in the Partnership Agreement shall be applicable to any controversy or dispute involving the provisions of this agreement and are hereby incorporated herein with the same force and effect as if herein set forth in full.' It further provided: 'This agreement shall be governed by and construed in accordance with the laws of the State of New York.'

The partnership agreement similarly provided for arbitration, specifying 'The details of such arbitration shall be agreed upon between the Partner or Partners involved and the Partnership, or failing such agreement within 15 days after demand by any party for such arbitration, such arbitration shall be held in New York City under the jurisdiction of and in accordance with the rules of the American Arbitration Association then obtaining.' That agreement further provided: 'This agreement, its validity, construction, administration and effect shall be governed by and construed in accordance with the laws of the State of New York.'

Appellant claims that California law applies and that under California law, appellant is clearly entitled to have the New York arbitration stayed pending a (California) judicial determination of its right to rescind the agreements.

Regarding the validity of contracts and rights created thereby, '(t)he law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.' (Rest., Conflict of Laws 2d, §§ 186, 187.) Appellant concedes the validity of allowing parties to choose the applicable law; however, appellant contends that Comment b to Section 187, precludes application of the section in the case at hand. That Comment provides in part 'A choice-of-law provision . . . will not be given effect if the consent of one of the parties to its inclusion in the contract was obtained by improper means, such as misrepresentation, duress, or undue influence, or by mistake. . . .' While the basis for appellant's lawsuit is the alleged misrepresentation or mistake regarding Equity Funding, there is no contention that inclusion of the choice of law clause itself was obtained by misrepresentation or mistake.

The trial court properly found that the choice of law provision of the parties was valid and that New York law should apply. The questions raised concerning the validity of the agreements can be raised before the New York arbitrator. (Weinrot v. Carp, 32 N.Y.2d 190, 344 N.Y.S.2d 848.)

In its April 23 order, the trial court further found that appellant's first, second, and third causes of action should be arbitrated; that the fourth cause of action (seeking indemnity) was premature; and that the fifth and sixth counts 'although labeled as causes of action, are in essence requests for ancillary relief in the form of a preliminary injunction, which, by definition, must be appended to a main action.' Even assuming a valid Calfornia cause of action, the trial court exercised 'its discretion to not issue a preliminary injunction herein.' It stated: 'Arbitration will result in an award that will be confirmed in a New York court. The arguments advanced here requesting a preliminary injunction, on the twin and alternate theories of multiplicity of suits and irreparable harm, can easily be addressed to the New York court which will ultimately enter its judgment on the arbitration award.'

Assuming Arguendo that the trial court erred in deciding an independent action for an injunction to prevent a multiplicity of suits could not be brought (Code Civ.Proc. § 526(6); Civ.Code, § 3422(3); Rynsburger v. Dairymen's Fertilizer Coop., Inc., 266 Cal.App.2d 269, 72 Cal.Rptr. 102), the question remains whether such an injunction would be improper under the factual circumstances of this case. As the trial court stated, the same arguments for a preliminary injunction can be presented to the New York court. Furthermore, there is some evidence that the New York arbitration might well be settled without resorting to the issues raised by the civil and criminal cases involving Equity Funding, the primary conflict raised by appellant. In his demand for arbitration, Weiner asked for a determination if his termination from plaintiff partnership was with or without cause; determination of damages whether with or without cause; determination of damages due because of breach of contract and failure to conduct reviews of audits; and a determination if Weiner is responsible for guarantee of any receivables. Before that demand was made, plaintiff informed Weiner that under the supplemental combination agreement, cause was not necessary for termination; causes not limited to the Equity Funding matters were also given for Weiner's termination. Thus the arbitration might be conducted without reference to the other suits. The trial court did not abuse its discretion by refusing to order a preliminary injunction restraining Weiner from continuing with the New York arbitration.

2. In granting Weiner's motion to stay the proceedings as to Weiner alone on appellant's first amended complaint, the trial court did not abuse its discretion.

Appellant first argues that there is no California authority permitting the court to stay the litigation as to Weiner to allow the New York arbitration to continue when '(g)rounds exist for the revocation of the agreement.' (Code Civ.Proc. § 1281.2.) Section 1281.2 of the Code of Civil Procedure concerns the court's ordering of arbitration. As discussed Supra, once it was decided that New York law applied, the court had no choice but to allow arbitration in New York despite the California provision that the court should order arbitration 'unless it determines that . . . (g)rounds exist for the revocation of the agreement.'

Section 1281.4 of the Code of Civil Procedure ¹ discusses the stay of proceedings when a court of competent jurisdiction, whether in California or not, has ordered arbitration of a controversy in issue in the action or proceeding before a court of this state. An application for an order to arbitrate is enough to compel a stay of the legal proceedings. Appellant claims that...