Opinion
A167455
01-31-2024
JOHN FRAZER et al., Plaintiffs and Respondents, v. FORREST RHOADS et al., Defendants and Appellants.
NOT TO BE PUBLISHED
(Contra Costa County Super. Ct. No. C22-02513)
BROWN, P. J.
Defendants Forrest Rhoads, individually and as trustee of the Rhoads Family Trust - 2003 under agreement dated February 5, 2003; Deborah Rhoads, as trustee of the Rhoads Family Trust - 2003 under agreement dated February 5, 2003; Sandra Rhoads and Tonia Rhoads, as trustees of the Rhoads Trust Established June 5, 2001; Rhoads Property Holdings, LLC (RPH); and RPH Tacoma, LP appeal from an order denying their motion to compel arbitration or stay litigation of the complaint filed against them by plaintiffs SPR Homes, LLC (SPR Homes) and John Frazer and Cecilia Cruickshank, as trustees of the Frazer Cruickshank 1982 Living Trust dated March 24, 1982 (the Frazer Cruickshank Trust). Defendants contend that plaintiffs' claims arise out of or relate to an agreement governing the dissolution of the parties' joint real estate investment portfolio and are therefore subject to the agreement's arbitration provision. We agree and will therefore reverse the trial court's order denying the motion. But we agree with plaintiffs that their claims against third parties Newtek Business Lending, LLC and NBL SPV I, LLC (together, Newtek), which are not arbitrable, require the trial court to exercise its discretion about how to manage parallel litigation and arbitration proceedings. We will therefore remand this matter to the trial court for further proceedings.
We refer to Forrest, Deborah, Sandra, and Tonia Rhoads in their capacities as trustees of the Rhoads trusts. Except where necessary to avoid confusion, we use "Rhoads" or "the Rhoads parties" to refer collectively to Forrest Rhoads as an individual, the Rhoads Trusts, and RPH.
BACKGROUND
Plaintiffs allege that in 2008 Forrest Rhoads and his family members began buying and managing real estate with the Frazer Cruickshank Trust, primarily rental homes and condominiums in Contra Costa and Solano counties. The Frazer Cruickshank Trust contributed capital and loans later converted to capital, while Forrest Rhoads' primary contribution was the management and operation of the properties. The properties were held by CC Home Rental, LLC (CCHR); West Contra Costa Rentals, LLC (WCCR); and Rainbow Property Rentals, LLC (Rainbow). RPH owned CCHR and owned interests in WCCR and Rainbow. Forrest Rhoads was a member of RPH. The Frazer Cruickshank Trust was not initially a member of RPH.
Around 2018, Forrest Rhoads and the Frazer Cruickshank Trust decided to end their relationship and devised a structure to divide their real estate portfolio. The proposed structure entailed RPH transferring its interests in WCCR and Rainbow to a new entity, SPR Homes. CCHR would transfer some of its properties to SPR Homes, with Forrest Rhoads retaining the properties that remained in CCHR. The Frazer Cruickshank Trust would also contribute its rights in an option agreement to SPR Homes. At the time of the complaint, the members of SPR Homes were the Frazer Cruickshank Trust and the two Rhoads family trusts. An amended operating agreement for SPR Homes changing that entity's ownership was prepared but never executed. Nonetheless, assets were transferred from RPH to SPR Homes, and SPR Homes obtained ownership and control of WCCR and Rainbow. The Frazer Cruickshank Trust also became a member of RPH in 2020.
On January 1, 2021, RPH (through Forrest Rhoads, its manager) and Frazer signed a one-page document titled "Property Transactions for 2020" documenting a series of transactions that had taken place in 2020. The Property Transactions for 2020 document sets forth that on January 1, 2020, the Frazer Cruickshank Trust had assigned $4 million of a loan the trust had made to two individuals with the last name Frazer; the trust had converted certain of its loans into capital in WCCR and CCHR; and the allocation of WCCR, CCHR, and Rainbow's income as between RPH and the Frazer Cruickshank Trust had been set at certain percentages of income. On February 14, 2020, CCHR had transferred two properties to Sandra and Deborah Rhoads, and the allocation of income from WCCR, CCHR, and Rainbow as between RPH and the Frazer Cruickshank Trust had changed slightly. In September 2020, the Frazer Cruickshank Trust had become entitled to all of the income from WCCR; the allocation of CCHR's and Rainbow's income as between RPH and the Frazer Cruickshank Trust had remained the same; and Cruickshank had become manager of WCCR.
The AROA
In December 2021, the parties signed an agreement titled "Amendment and Restatement of Option Agreement" (AROA). The AROA states that it was entered by and between SPR Homes as "Grantor" and the Frazer Cruickshank Trust as "Purchaser." However, the AROA also states that SPR Homes was the successor in interest to Forrest Rhoads, the Rhoads trusts, and RPH, and that references to Grantor would include, as applicable, those predecessors. The AROA further states that Grantor was divided from RPH.
Under the heading "Grantor," Forrest Rhoads signed the AROA on behalf of SPR Homes. Also under the heading "Grantor" and under the subheading "Acknowledged and Agreed," Forrest, Deborah, Sandra, and Tonia Rhoads signed on behalf of the Rhoads trusts and RPH.
According to the AROA, the Rhoads trusts were the principal owners of RPH, with the Frazer Cruickshank Trust holding a capital interest and variable profit interest arising from a prior option agreement that began in 2008 and was amended in 2011, 2013, and 2016. The AROA said the prior option agreement had allocated to the Frazer Cruickshank Trust 75 percent of the collective appreciation in value of "specified real estate acquired and owned by Grantor," but the AROA did not list the specific assets. The AROA states that the parties had contemplated that the Frazer Cruickshank Trust's appreciation and capital interests would be calculated and distributed upon sale of each property and that this did occur after the sale of some properties. But this process was not practical or reflective of the parties' overall agreement. The parties therefore intended the AROA to streamline and revise this division and distribution process.
The AROA specifies, as of the date of the agreement, the parties' agreement as to the dollar values of the Frazer Cruickshank Trust's appreciation and capital interests; the amounts already paid via property sales, refinancing proceeds, and the payment of $4 million in loans to affiliates of the Frazer Cruickshank Trust; and the amounts of appreciation and capital interests remaining. The AROA further states that the parties, "on behalf of themselves and their predecessors in interest," agreed to amend and restate the prior option agreement (including its amendments). The AROA then obligates Grantor to pay or cause to be paid to the Frazer Cruickshank Trust the amounts remaining, either in cash to the extent that properties are sold or in properties or property interests, including indirect property interests.
The AROA contains a clause stating that the agreement "constitutes the entire agreement between the parties, and merges and supersedes all representations, understandings, and agreements with respect to the same subject matter." The AROA also contains an arbitration provision requiring arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof."
Plaintiffs' complaint
In November 2022, SPR Homes and the Frazer Cruickshank Trust filed a complaint against Rhoads and Newtek. The complaint raises three sets of factual allegations and related claims for relief.
First, it alleges that the Property Transactions for 2020 document constituted a contract between RPH and Frazer entitling the Frazer Cruickshank Trust to certain distributions of income from CCHR and that Forrest Rhoads, as the manager of CCHR and RPH, refused to make those distributions. Plaintiffs allege a cause of action for breach of contract based on these allegations.
Second, plaintiffs allege that Forrest Rhoads, as manager of RPH, signed guarantees for two loans from Newtek to RPH Tacoma, LP for the development of a property in Tacoma, Washington. Because the Frazer Cruickshank Trust had a financial interest in RPH but no interest in the Tacoma property, plaintiffs allege Forrest Rhoads' execution of these loan guarantees for RPH breached his fiduciary duty to them. Plaintiffs also allege Forrest Rhoads lacked authority to execute the guarantees, so the loan guarantees do not encumber assets that were transferred from RPH to SPR Homes. Based on these allegations, plaintiffs request damages for breach of fiduciary duty and negligence and seek a declaration that the loan guarantees do not apply to any SPR Homes assets or the Frazer Cruickshank Trust.
Finally, in causes of action for declaratory judgment and an accounting, plaintiffs allege the existence of a dispute between the Frazer Cruickshank Trust and Rhoads concerning the control of SPR Homes, the operative documents governing their relationship, ownership of the assets in the real estate portfolio, liability for operating costs, the parties' respective capital accounts and monetary obligations upon division of the assets, and the proper accounting treatment of the various business entities and assets. They allege this dispute arose because Rhoads and the Frazer Cruickshank Trust began but did not complete the process of dividing their real estate investment portfolio.
Rhoads moved to compel arbitration of the complaint based on the AROA and simultaneously filed with an arbitration provider a demand for arbitration of Rhoads' own claims against the Frazer Cruickshank Trust. In support of the motion to compel, Rhoads attached copies of the AROA and the arbitration demand.
After an unreported hearing, the trial court denied the motion.
DISCUSSION
Rhoads argues the trial court erred in denying the motion to compel arbitration because the AROA contains an arbitration provision, Rhoads is entitled to enforce it against plaintiffs, and the parties' dispute falls within its scope. We agree with Rhoads and conclude it was error to deny the motion.
"California law strongly favors arbitration. Through the comprehensive provisions of the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), 'the Legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." '" (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125.) Accordingly, as a general rule "arbitration should be upheld 'unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.'" (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) However, arbitration remains fundamentally contractual, and the" '" '" 'policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate.'" [Citation.] "Although '[t]he law favors contracts for arbitration of disputes between parties' [citation],' "there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate." '" '"' " (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59, italics omitted (Avery).)
Undesignated statutory citations are to the Code of Civil Procedure.
"Sections 1281.2 and 1290.2 create a summary proceeding for resolving petitions to compel arbitration." (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) "The term 'petition' . . . has been construed, in practice, to include the term 'motion' when, as here, an action is already pending." (Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349.)" 'Section 1281.2 requires a court to order arbitration "if it determines that an agreement to arbitrate . . . exists." '" (Ruiz, at p. 841.) "The petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination." (Id. at p. 842.)
"In California, '[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.' [Citations.] Generally, an arbitration agreement must be memorialized in writing. [Citation.] A party's acceptance of an agreement to arbitrate may be express, as where a party signs the agreement. A signed agreement is not necessary, however, and a party's acceptance may be implied in fact [citation] or be effectuated by delegated consent [citation]." (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)
" 'There is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]' [Citation.] Interpreting a written document to determine whether it is an enforceable arbitration agreement is a question of law subject to de novo review when the parties do not offer conflicting extrinsic evidence regarding the document's meaning." (Avery, supra, 218 Cal.App.4th at p. 60.)
I. The Rhoads parties as parties to the AROA
As the trial court noted, it is undisputed that plaintiffs entered into the AROA, the AROA contains an arbitration provision, and the arbitration provision is not unconscionable or otherwise unenforceable. The first question to answer is therefore whether the Rhoads parties may enforce the agreement. We conclude they can.
" 'An essential element of any contract is "consent." [Citations.] The "consent" must be "mutual." [Citations.] "Consent is not mutual, unless the parties all agree upon the same thing in the same sense." [Citations.]' [Citations.]' "The existence of mutual consent is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe. [Citation.] Accordingly, the primary focus in determining the existence of mutual consent is upon the acts of the parties involved." '" (Monster Energy Co. v. Schechter (2019) 7 Cal.5th 781, 789.) The parties did not submit any extrinsic evidence on the meaning of the AROA, so we interpret the agreement as a matter of law, examining it for objective manifestations of Rhoads' consent to the agreement's terms. (Avery, supra, 218 Cal.App.4th at p. 60.)
The AROA states that it "is entered by and between [SPR Homes], as Grantor, and [the Frazer Cruickshank Trust], as Purchaser" and "[t]he parties agree" to the terms in the agreement. (Boldface omitted.) Absent from this provision is any mention of Rhoads. Plaintiffs rely on this to argue the Rhoads parties have not shown they can enforce the agreement.However, this is not the only AROA provision relevant to determining the parties to the agreement. The next paragraph of the AROA recites that "Grantor is the (ultimate) successor in interest of Lanny Rhoads and Forrest Rhoads" and that "[a]dditional predecessors of Grantor" under various option agreements are the Rhoads trusts and RPH. The AROA then states, "Reference to Grantor includes, as applicable, such SPR predecessors." Later, the AROA states that the parties, "on behalf of themselves and their predecessors in interest," agreed to amend and restate the prior option agreement and its amendments. Forrest Rhoads signed the AROA under the heading "Grantor" for SPR Homes. Also under the heading "Grantor" and under the subheading "Acknowledged and Agreed," Forrest, Deborah, Sandra, and Tonia Rhoads signed the AROA for the Rhoads trusts and RPH.
The parties quarrel over whether the Rhoads parties have the burden to prove that they are entitled to enforce the AROA's arbitration provision and that it applies to plaintiffs' complaint or whether plaintiffs must show that the arbitration provision does not apply. We need not resolve this dispute because, even if the Rhoads parties had the burden of proving both elements, we conclude they have.
The arbitration provision, meanwhile, requires arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof." As the trial court noted, this is not limited to just claims by or against SPR Homes or the Frazer Cruickshank Trust but instead broadly covers "any dispute." Given that the AROA refers to Rhoads, the AROA includes Rhoads within the definition of Grantor as used in the agreement, the AROA purports to bind Rhoads to the restatement and amendment of Rhoads' interests under prior agreements, and Rhoads signed the AROA under the heading of Grantor to indicate acknowledgement and agreement to its terms, the only reasonable conclusion is that Rhoads is bound by and may enforce the arbitration provision.
The Rhoads parties' involvement in the AROA would also likely make them third party beneficiaries of the agreement, as they argue. (See Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 821 [nonsignatory may enforce a contract as a third party beneficiary if the nonsignatory was likely to benefit from the contract, a motivating purpose of the contracting parties was to benefit the third party, and permitting the third party to enforce the contract is consistent with the contract's objectives and the parties' reasonable expectations].) However, because we conclude Rhoads may enforce the AROA and its arbitration provision as parties, it is unnecessary to examine this argument in detail.
We draw support for this conclusion from Monster Energy Co. v. Schechter, supra, 7 Cal.5th 781. There, litigants signed a settlement agreement with a confidentiality provision that stated the plaintiffs and their counsel would not disclose the terms of the settlement. (Id. at pp. 786-787.) The plaintiffs signed the agreement, and their counsel signed it under the notation," 'Approved as to form and content.'" (Id. at p. 787, capitalization omitted.) The Supreme Court held that the defendant's claim against the plaintiffs' counsel for breach of the confidentiality provision had at least minimal merit sufficient to overcome an anti-SLAPP motion. (Id. at p. 796.) The Supreme Court explained that even though the settlement agreement did not include the plaintiffs' counsel within the definition of the parties, because the agreement's confidentiality provision purported to bind the counsel, it was reasonable to conclude that the counsel's signature evinced a willingness to be bound by the terms that referred to him. (Id. at pp. 794, 796.) Similarly here, the terms of the AROA encompassed Rhoads and Rhoads signed it, so the AROA, including its arbitration provision, bound Rhoads. Rhoads must therefore also have been able to enforce the AROA and its arbitration provision. And unlike the counsel's signature in Monster, whose notation "Approved as to form and content" usually means only that an attorney perceives no impediment to a client signing a document (id. at p. 792), Rhoads' signature indicated outright agreement with the AROA's substantive terms.
Plaintiffs question whether Rhoads' signatures on the AROA automatically make Rhoads a party able to enforce its provisions, citing FullStory, Inc. v. North American Capacity Insurance Company (C.D.Cal., Jan. 6, 2023, No. CV 22-7344-GW-ASx) 2023 U.S. Dist. Lexis 2797. Fullstory is a fraudulent joinder decision in which a federal district court ruled that a plaintiff could assert no claims for breach of an insurance agreement against a defendant, even though the defendant signed the insurance agreement. (Id. at *13-*16.) The defendant's signature was only as a witness who caused the agreement to be officially signed by another party, and the agreement imposed no insurance obligation on the defendant and gave the defendant no portion of the premium. (Id. at *14-*15.) Fullstory has no bearing here because the AROA here does impose obligations on Rhoads by including Rhoads within the definition of Grantor and the signature block for Grantor states directly that Rhoads agreed to the AROA's terms. Plaintiffs certainly offer no alternative explanation for why Rhoads would have signed the agreement or why plaintiffs would have allowed Rhoads to do so.
II. AROA's coverage of plaintiffs' complaint
Having determined that Rhoads may enforce the AROA and its arbitration provision, we turn next to the question of whether that arbitration provision covers the dispute or controversy in plaintiffs' complaint. "In deciding whether the parties agreed to arbitrate their dispute, we apply state rules of contract interpretation to evaluate whether the parties objectively intended to submit the issue to arbitration." (Ramos v. Superior Court (2018) 28 Cal.App.5th 1042, 1051.)"' "[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is 'broad' or 'narrow.'"' [Citation.] Clauses providing for arbitration of disputes' "arising from"' or' "arising out of"' an agreement have generally been interpreted to apply only to disputes regarding the interpretation and performance of the agreement. [Citations.] On the other hand, arbitration clauses . . . that use the phrase 'arising under or related to' (italics added) have been construed more broadly. [Citations.] For a party's claims to come within the scope of such a clause, the factual allegations of the complaint 'need only "touch matters" covered by the contract containing the arbitration clause.'" (Id. at pp. 1051-1052.)
The AROA's arbitration provision qualifies as a broad provision. The arbitration provision requires arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof." By referring in the alternative to claims that arise out of or relate to the AROA, on the one hand, and claims for breach of the AROA, on the other, the arbitration provision makes clear that it is intended to apply to any dispute that has its roots in the relationship governed by the AROA. (See Ramos v. Superior Court, supra, 28 Cal.App.5th at p. 1052 ["courts have interpreted agreements with broad arbitration clauses like the one in this case to encompass tort, statutory, and contractual disputes that '" 'have their roots in the relationship between the parties which was created by the contract'"' "].) Furthermore, the use of the phrase"' "arising out of or relating to," '" whose meaning was already well established in law as a broad provision, signals the parties' intent to give the arbitration provision the widest possible sweep. (Ibid.; see Fleet Tire Serv. v. Oliver Rubber (8th Cir. 1997) 118 F.3d 619, 620-621 [provision requiring arbitration of" '[a]ny controversy or claim arising out of or relating to this Agreement or any breach of its terms'" "constitutes the broadest language the parties could reasonably use to subject their disputes to that form of settlement, including collateral disputes that relate to the agreement containing the clause"]; Rice v. Downs (2016) 248 Cal.App.4th 175, 188-190 [parties are presumed to know and have in mind all applicable laws when drafting agreement, so parties' failure to use "relating to" or "in connection with" in arbitration provision indicates intent to have a narrow arbitration provision].)
With this framing in mind, we have little difficulty concluding that the AROA's arbitration provision requires arbitration of plaintiffs' claims against Rhoads. The complaint raises essentially three sets of factual allegations and related claims for relief: (1) a breach of contract claim based on the Property Transactions for 2020 document; (2) claims for breach of fiduciary duty, negligence, and declaratory judgment based on Forrest Rhoads' execution of the Newtek loan guarantees for RPH; and (3) declaratory judgment and accounting claims based on the dispute about assets ownership and monetary obligations stemming from the incomplete process of dividing the parties' real estate investment portfolio.
The first two sets of claims may not arise out of the AROA, as the trial court concluded, because they do not depend on or seek to enforce the AROA. However, the arbitration provision is not limited to just claims that arise out of the AROA. It also extends to claims "relating to" the AROA, and the contract and loan guarantees claims both relate to the AROA.
The Property Transactions for 2020 document describes the conversion of specific amounts of the Frazer Cruickshank Trust's loans into capital contributions to WCCR and CCHR, the trust's assignment to family members of $4 million of loans to a RPH subsidiary, and the amounts of the parties' property ownership and income interests in WCCR, CCHR, and Rainbow on certain dates in 2020. The AROA states that the parties "on behalf of themselves and their predecessors," restate and amend the Frazer Cruickshank Trust's interests in various properties acquired and owned by "Grantor." The AROA makes clear that Rhoads is a predecessor of SPR Homes and is therefore included within the meaning of "Grantor" as applicable. The AROA's merger clause further states that the AROA supersedes all agreements between the parties relating to the same subject matter. Even assuming for the sake of argument that the Property Transactions for 2020 document constitutes an "agreement," as plaintiffs allege, the AROA purports to restate, amend, and supersede it. Accordingly, plaintiffs' claims based on the Frazer Cruickshank Trust's appreciation and capital interests as stated in the Property Transactions for 2020 document implicate and relate to the AROA and must be arbitrated. Plaintiffs may not avoid their arbitration obligations by suing Rhoads under an interim or obsolete alleged agreement that does not contain an arbitration provision when the parties later restated and amended the alleged agreement by entering into one with an arbitration provision.
The trial court found no indication that the properties at issue in plaintiffs' breach of contract claim were the same as those the AROA governs, which were those owned and managed by SPR Homes. But the AROA restates the value of the Frazer Cruickshank Trust's total interests in RPH and its subsidiaries and the Property Transactions for 2020 document purports to describe RPH's interests in the three subsidiaries WCCR, CCHR, and Rainbow, so the two documents are necessarily related. The AROA also includes Rhoads within the definition of Grantor, so the Grantor's obligation to transfer properties could be interpreted to apply to Rhoads as well as SPR Homes. Besides, the two documents show a more specific connection. The Property Transactions for 2020 document refers to $4 million in loans from the Frazer Cruickshank Trust that the trust assigned to individuals sharing Frazer's last name. The AROA includes the payment of $4 million in "purchaser affiliate" loans in its summary of the Frazer Cruickshank Trust's appreciation and capital interests in properties acquired by SPR Homes or Rhoads. The obvious inference is that the two documents refer to the same loans. At a minimum, there is sufficient overlap between the entities and parties at issue in both documents to conclude that the two are related and a dispute over the Property Transactions for 2020 document must be arbitrated, given the policy that doubts regarding the arbitrability of a dispute must be resolved in favor of arbitration. (Coast Plaza Doctors Hospital v. Blue Cross of California, supra, 83 Cal.App.4th at p. 686.)
Plaintiffs devoted only two sentences of their opposition in the trial court to arguing that Rhoads had not shown the AROA governed the parties' relationship. They devoted the rest of their opposition to arguing that Rhoads could not enforce the AROA and that the trial court should deny arbitration because of Newtek's presence in the litigation. There is no indication in the record that plaintiffs ever argued that the properties at issue in each document are different, and they have not made this argument on appeal.
Plaintiffs resist this conclusion by arguing that the arbitration provision's "relating to" phrase means claims must be causally related to AROA to be subject to arbitration. Plaintiffs cite no authority for this position, and the law is to the contrary. Ramos v. Superior Court, supra, 28 Cal.App.5th at pages 1051 and 1052 held that when an arbitration provision in a contract uses the phrase"' "arising under or related to," '" the factual allegations in complaint" 'need only "touch matters" '" covered by the contract to be subject to arbitration. This language still requires some connection to the AROA and does not require arbitration of all actions between the parties, as Rice v. Downs, supra, 28 Cal.App.4th at page 187 noted and plaintiffs emphasize. But the connection need not be causal, so the subject matter relationship between plaintiffs' breach of contract claim and the AROA is sufficient.
Marsch v. Williams (1994) 23 Cal.App.4th 250, to which plaintiffs direct us, is factually distinguishable. In that case, the parties were partners in two separate real estate partnerships, only the second of which had a clause requiring arbitration of disputes arising out of or relating to it. (Id. at p. 252.) The partnerships were separate enterprises with separate objectives, and the second agreement did not refer to the first. (Id. at pp. 254-255.) The Court of Appeal held that because the agreements were not closely connected in purpose, did not incorporate one another, were not executed at the same time, and embodied separate contractual relationships with separate commercial risks, the arbitration provision in the second agreement did not require arbitration of a complaint asserting claims for damages based on the first. (Id. at p. 256.) This was true even though the complaint alleged the defendant committed actions in the first partnership for the purpose of exerting financial pressure in the second partnership. (Id. at pp. 253, 255-256.) Unlike the agreements in Marsch, here the AROA refers back to the substance of the Property Transactions for 2020 document, mentions affiliate loan transactions memorialized in the first document, and purports to restate and amend the parties' overall business relationship.
The loan guarantee claims also relate to the AROA. Plaintiffs allege that RPH owned certain properties when Forrest Rhoads executed the loan guarantees and that RPH subsequently transferred some of those properties to SPR Homes as part of the division of the parties' real estate portfolio. Plaintiffs further allege that Forrest Rhoads executed the loan guarantees without authorization, so the uncertainty about whether the loan guarantees apply to property RPH owned at the time has impaired and prevented the sale of these properties by clouding the properties' title. This alleged damage from breach of fiduciary duty and alleged dispute warranting a judicial declaration relate to the AROA because it is the AROA that is driving the sale of the properties. The AROA creates the need to divide the real estate portfolio, either in cash or in kind, to satisfy the Frazer Cruickshank Trust's capital and appreciation interests. If the properties used to satisfy the Frazer Cruickshank Trust's appreciation and capital interests are not marketable or are worth less because of the cloud on their title, the viability of the AROA's procedure for dividing the parties' real estate assets could be compromised. Conversely, if there were other ways to satisfy the AROA's obligation to transfer properties to the Frazer Cruickshank Trust, then the clouded title would cause plaintiffs less or no harm.
The trial court's denial of the motion to compel arbitration also failed to consider plaintiffs' third set of claims, for declaratory relief and an accounting based on the dispute about the parties' assets and monetary obligations. On their face, these claims both arise out of and relate to the AROA. As plaintiffs' own complaint alleges, the asset division process included the creation of SPR Homes and the transfer of various property interests to it from Rhoads. This directly matches the property division process called for in the AROA, pursuant to which SPR Homes was divided from RPH and SPR Homes and/or Rhoads would transfer to the Frazer Cruickshank Trust direct or indirect property interests or cash to satisfy the trust's rights. The property division dispute that plaintiffs allege exists, then, is one arising from and reflected in the obligations contained in the AROA.
Even if it does not directly arise out of the AROA, the dispute alleged in the complaint relates to the AROA. Any resolution of the dispute alleged in the complaint must at least consider the effect of the AROA on the parties' business relationship. The complaint also alleges that the division process required the Frazer Cruickshank Trust to transfer its rights in an option agreement to SPR Homes. A fair reading of the complaint suggests this mention of an option agreement refers either to the AROA or to the prior option agreement and its amendments that the AROA amended and restated. Plaintiffs certainly offer no reason to believe that the complaint was referring to some other agreement separate from the AROA or the prior agreements mentioned in it. The AROA is therefore a part of the overall dispute that plaintiffs allege exists, so the dispute relates to the AROA and must be arbitrated.
Plaintiffs argue extensively that we cannot or should not consider the allegations in Rhoads' claim filed in arbitration when considering whether the claims in plaintiffs' complaint must be arbitrated. Because we conclude plaintiffs' complaint on its face shows that their claims are subject to arbitration, we need not address plaintiffs' arguments against consideration of Rhoads' arbitration claim.
III. Staying or denying arbitration under section 1281.2, subdivision (c)
While we conclude the trial court erred in denying Rhoads' motion to compel arbitration, we cannot say that it should have granted that motion in full. As plaintiffs point out, even if a court finds the existence of an agreement to arbitrate a dispute, the court need not order arbitration if it determines that a "party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact." (§ 1281.2, subd. (c).) In such circumstances, "the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding." (§ 1281.2.) A decision whether section 1281.2, subdivision (c) applies is reviewed for substantial evidence or de novo, depending on whether the trial court relied on factual determinations. (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 972.) We review for abuse of discretion a trial court's decision whether to stay or deny arbitration under section 1281.2, subdivision (c). (Acquire II, Ltd., at p. 971.)
Plaintiffs argue this exception applies here and ask us to remand the matter to the trial court to determine the appropriate path. We agree that this is the proper course. As the trial court ruled, plaintiffs name Newtek in their request for a declaration of rights and responsibilities related to the loan guarantees, but Newtek was not party to the AROA and did not consent to arbitration. This presents the possibility of conflicting rulings in the arbitration and litigation. An arbitrator might find the loan guarantees void while a court finds them valid, and vice versa.
The same could be said of RPH Tacoma, LP, which is a defendant in this case but not a signatory to the AROA. However, it seems likely that RPH Tacoma, LP would consent to arbitration, and plaintiffs do not argue that their claims against RPH Tacoma, LP must be litigated rather than arbitrated.
Rhoads challenges this, pointing out that Newtek alleged in its answer that it no longer owns any interest in the loans at issue. Even assuming this is accurate, it is immaterial. The same possibility of conflicting rulings would exist as to the assignee or assignees of the Newtek loans, whom plaintiffs would presumably substitute in for one of the Doe defendants named in the complaint.
While the trial court concluded that Newtek's presence in the litigation creates a possibility of conflicting rulings, it expressly declined to rely on this as grounds to stay or deny arbitration. Instead, the trial court denied the motion solely because of its conclusion that the AROA's arbitration provision did not apply. Because the trial court has not yet exercised its discretion under section 1281.2, subdivision (c), there is no ruling for us to review. Nor can we rule on this issue as a matter of law. The Newtek portion of plaintiffs' claims represents a small portion of the overall dispute, so it seems quite doubtful that it could justify an outright refusal to enforce the arbitration agreement. But we cannot say definitively that it would be preferable to stay the arbitration in favor of a short court proceeding on the minor question of the enforceability of the Newtek loan guarantees on property transferred to SPR Homes, or instead stay the litigation of that minor question until the completion of the arbitration of the broader disputes over the parties' real estate portfolio. We will therefore remand to the trial court to exercise its discretion on this point.
DISPOSITION
The trial court's order is reversed. The matter is remanded for further proceedings not inconsistent with this opinion.
WE CONCUR: STREETER, J., HIRAMOTO, J. [*]
[*] Judge of the Superior Court of California, County of Contra Costa, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.