Woolley v. Embassy Suites, Inc.

• Decision Date: 28 February 1991
• Docket Number: No. A049987,A049987
• Citation: 278 Cal.Rptr. 719,227 Cal.App.3d 1520
• Court: California Court of Appeals Court of Appeals
• Parties: Robert E. WOOLLEY et al., Plaintiffs and Appellants, v. EMBASSY SUITES, INC., et al., Defendants and Respondents.

Page 719

278 Cal.Rptr. 719

227 Cal.App.3d 1520

Robert E. WOOLLEY et al., Plaintiffs and Appellants, v. EMBASSY SUITES, INC., et al., Defendants and Respondents.

No. A049987.

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

Feb. 28, 1991.

James J. Brosnahan, Andrew E. Monach, Jeffrey Nussbaum, Morrison & Foerster, San Francisco, and John W. Bickel, II, Bickel & Brewer, Dallas, Tex., for plaintiffs/appellants.

Richard Murray, Gregory P. Landis, Leslie G. Landau, John C. Morrissey, Debra L. Fischer, McCutchen, Doyle, Brown & Enersen, San Francisco, and Ronald L. Reid, Alston & Bird, Atlanta, Ga., for defendant/respondent.

SMITH, Associate Justice.

This is an appeal from an order granting a preliminary injunction, the effect of which is to prevent the owners of nine hotels managed by Embassy Suites, Inc. (Embassy) from terminating Embassy's management contracts pending the resolution of an arbitration to determine whether Embassy breached the contracts. Because the injunction violated several principles governing the issuance of such equitable relief, we will reverse.

BACKGROUND

Plaintiffs Robert Woolley and Charles Sweeney are managing general partners of 22 partnerships which own 22 hotels throughout the nation. All the hotels are franchised by Embassy and 17 of the 22 hotels are also managed by Embassy pursuant to 17 individual management agreements. Most of these management contracts were acquired in 1986 from Landmark Hotels, Inc.

The contracts provide that the owner shall have the right to terminate the manager upon service of written notice of breach of contract, setting forth the details of the breach and the failure of the manager to cure the breach within 60 days following such notice. The agreements also permit the manager to demand arbitration within 15 days of the notice of breach, upon which the dispute shall be submitted promptly to binding arbitration.

In December of 1989 the Woolley/Sweeney partnerships served Embassy with notices of default on nine of the hotels, alleging that Embassy had materially breached the management agreements by making expenditures in excess of budget allocations. On January 18, 1990 (all further calendar references are to that year), they filed the present suit against Embassy and its parent Holiday Corporation for damages, rescission, declaratory relief and an accounting. Plaintiffs alleged breach of contract, negligence, fraud and other wrongdoing, and sought substantial damages as well as a judicial declaration that the management contracts ¹ could be terminated.

Embassy responded by filing five separate actions in Dallas, Texas, seeking declaratory and injunctive relief and demanding arbitration of the claims made by plaintiffs in the California action. On February 6, Embassy moved the Texas court to compel arbitration and successfully obtained a stay from the superior court in California pending the outcome of the arbitration issue in Texas. The parties eventually entered into a consent order in Texas under which the "cure period" for plaintiffs' notices of default would begin to run on May 2, and plaintiffs would abstain from terminating the management contracts until at least June 1. On May 11, the Texas court adopted in full the findings of a special master that the disputes with respect to the nine hotels in question were subject to arbitration. ²

On May 22, Embassy filed an application for a temporary restraining order and obtained an order to show cause why a preliminary injunction should not issue barring plaintiffs from terminating the management contracts pending the outcome of the arbitration. After considering the declarations and extensive briefing the court below found that plaintiffs' threatened termination of the nine contracts "would be likely to render the arbitrations ineffectual and to cause irreparable harm to [Embassy]" and issued a preliminary injunction enjoining plaintiffs from terminating or attempting to terminate any of the management agreements. The injunction was made effective upon Embassy's posting of a $4,350,000 bond.

APPEAL

I The Effect of Code of Civil Procedure Section 1281.8 on the Requirements for Injunctive Relief

Embassy asserts that plaintiffs' threatened termination of the management contracts is an attempt to circumvent their promise to arbitrate and that the trial court's injunction was necessary to preserve the status quo and prevent the arbitrator's award from becoming moot. It relies on Code of Civil Procedure section 1281.8 (all unspecified statutory references are to that Code), which was enacted in 1989 and provides, in pertinent part: "(b) A party to an arbitration agreement may file ... an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief." (Emphasis added.)

It is Embassy's position that the italicized language means that a trial court passing on the propriety of issuing an injunction pending arbitration need determine only the single issue of whether the arbitration award might be rendered ineffectual without injunctive relief, and that the other traditional requirements for obtaining a preliminary injunction (e.g., probability of success on the merits, irreparable injury, inadequacy of a remedy at law) do not apply. Although no California appellate court has yet addressed this issue, we are convinced Embassy's interpretation is misguided.

Section 1281.8 was enacted primarily to allow a party to an arbitration to obtain provisional judicial remedies without waiving the right to arbitrate, as some early cases had suggested. (Stats.1989, ch. 470, § 2, Legislative Counsel's Digest, SB 1394, p. 1482; Senate Committee On Judiciary Report (hereafter Committee report), 5/17/89, pp. 1-2.) The statute covers not merely injunctions, but all provisional remedies, including attachments, temporary protective orders, writs of possession and appointment of receivers. (§ 1281.8, subds. (a)(1)-(4).) The logical reason for the requirement that an applicant be required to show that an arbitration award may be rendered ineffectual is to ensure that the court does not invade the province of the arbitrator--i.e., the court should be empowered to grant provisional relief in an arbitrable controversy only where the arbitrator's award may not be adequate to make the aggrieved party whole. However, there is nothing in the statute's history which indicates that the provision was intended to supplant the general statutes applicable to injunctions or decisional law criteria governing them.

It is a settled precept of statutory construction that a special statute will not be construed to effect a repeal of a more general statute unless the two are irreconcilable and in direct conflict with each other. (Van De Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 838, 251 Cal.Rptr. 530.) There is a presumption against repeal by implication, especially where settled law has been generally understood and acted upon. (Metropolitan Water Dist. v. Dorff (1982) 138 Cal.App.3d 388, 396-397, 188 Cal.Rptr. 169.) A special act will not be considered an exception to the general statute unless the two acts are so inconsistent that there is no possibility of concurrent operation, or where the later act gives undebatable evidence of an intent to supersede the earlier. (Fillmore v. Irvine (1983) 146 Cal.App.3d 649, 657, 194 Cal.Rptr. 319; State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (1979) 88 Cal.App.3d 43, 58, 152 Cal.Rptr. 153.)

Embassy offers no such "undebatable" evidence overcoming this presumption. Instead, it points to a sentence in the Committee report indicating that section 1281.8 was modeled after a similar New York statute (CPLR 7502(c)), and exhorts us to follow New York cases which hold that this statute renders "inapplicable" the grounds for relief elsewhere set forth in that state's more general statutes. (Suffolk County Patrolmen's Benevolent Association, Inc. et al. v. County of Suffolk (1989) 150 A.D.2d 361, 540 N.Y.S.2d 882, 883; Drexel Burnham Lambert v. Ruebsamen (1988) 139 A.D.2d 323, 531 N.Y.S.2d 547, 550.) The cited decisions are not convincing, however, in that they apparently ignore that portion of CPLR 7502 incorporating the more general statutes. ³ Moreover, other New York cases either implicitly or explicitly hold that the traditional requirements for obtaining provisional relief still apply. (Saferstein v. Wendy (1987) 137 Misc.2d 1032, 523 N.Y.S.2d 725, 727; Miller v. Macri (1987) 132 A.D.2d 691, 518 N.Y.S.2d 170, 172.) New York's highest court has yet to resolve the apparent conflict.

Regardless of the controversy in New York, however, there is strong evidence that the Legislature in this state did not intend to sweep aside application of traditional principles of equity in enacting section 1281.8.

First, "provisional remedy" is defined in section 1281.8 to include "[p]reliminary injunctions and temporary restraining orders issued pursuant to Section 527." (§ 1281.8, subd. (a)(3), emphasis added.) Section 527, subdivision (a) permits an injunction to be issued upon a satisfactory showing "that sufficient grounds exist therefor." Permissible and impermissible grounds for injunctive relief are found in section 526. By thus referring back to section 527, section 1281.8 incorporates the more general provisions governing injunctions found elsewhere in the Code of Civil Procedure.

Second, the Committee report on section 1281.8 states plainly that "[t]he other requirements for obtaining the provisional remedy would still apply." (Committee report, p. 2., com. 2(c), emphasis added.) A clearer manifestation of an intent to preserve generally applicable rules of equity within the statute could hardly be found.

Embassy rejoins that the quoted sentence must have been intended to denote only procedural requirements. We doubt...