Wednesday, September 24, 2008
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C.A. Permits Dismissal After Claim Is Ordered to Arbitration
By KENNETH OFGANG, Staff Writer
A plaintiff may avoid court-ordered contractual arbitration by dismissing the action before arbitration begins, the Court of Appeal for this district ruled yesterday.
Div. Two, in a 2-1 decision, granted a writ of mandate allowing a suit by Cardiff Equities, Inc. to go forward against real estate developer Robert W. O’Neel III. Cardiff, which is based in Los Angeles, had agreed in June 2005 to invest $1.4 million in an O’Neel development in Myrtle Beach, S.C. O’Neel separately agreed to repay the full investment, plus an agreed return, on or before July 31, 2006.
The first agreement had an arbitration clause; the second did not.
In June of last year, however, Cardiff filed suit in Los Angeles Superior Court, alleging that O’Neel and entities under his control failed to honor the agreement and failed to account for profits in which Cardiff was entitled to share.
O’Neel and the other defendants moved to compel arbitration. The judge granted the motion, rejecting several arguments by Cardiff, including that the dispute arose only under the second agreement, which lacked an arbitration clause.
Cardiff then filed a request for dismissal without prejudice, and subsequently filed a second suit, naming O’Neel as sole defendant, and restating some, but not all, of the claims made in the first suit. Los Angeles Superior Court Judge Ann I. Jones, however, stayed the suit, declaring it to be “nothing other than an attempt to plead around the Court’s prior ruling compelling arbitration.”
Justice Victoria Chavez, writing yesterday for the Court of Appeal, said Jones should have denied the stay because the dismissal divested the court of jurisdiction over the first suit.
By limiting the claims in its second suit to issues arising under the second agreement, the justice reasoned, Cardiff shed itself of any obligation to arbitrate those claims.
Chavez agreed with the plaintiff that it had the right to dismiss its original action prior to commencing arbitration. To hold otherwise, she said, “would be at odds with the right of a plaintiff to dismiss a case voluntarily and without prejudice set forth in [Code of Civil Procedure] section 581, subdivision (b)(1) and subdivision (c), both of which provide that a plaintiff may voluntarily dismiss his or her complaint at any time before the ‘actual commencement of trial.’”
The justice also noted that the second agreement, the one not containing an arbitration clause, contained language permitting claims based on that agreement to be brought separately.
Justice Kathryn Doi Todd joined in the opinion, but Justice Judith Ashmann-Gerst dissented.
The dissenting jurist argued that while Cardiff’s right to dismiss the first case was absolute, and that it had the right to file a second suit assuming it was timely, the trial judge correctly ruled that the claims in the two suits were so “inextricably intertwined” that it was appropriate to stay the second suit.
The case is Cardiff Equities, Inc. v. Superior Court (O’Neel), 08 S.O.S. 5446.
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