Longwell Arbors, Llc v. Cpi Pool Funding ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
LONGWELL ARBORS, LLC, a
Washington limited liability company; No. 71121-1-1
LONGWELL COMPANY, a Washington
limited liability company; and DIVISION ONE
STANLEY XU and NANLING CHEN,
husband and wife, individually and the
marital community comprised thereof, UNPUBLISHED OPINION
Respondents,
FILED: October 6, 2014
CPI POOL II FUNDING, LLC, a
Washington limited liability company,
Appellant.
Leach, J. — CPI Pool II Funding LLC (CPI) appeals the trial court's denial
of its motion to compel arbitration in the lawsuit instigated by its former business
partner, Longwell Arbors LLC. In CPI's previous litigation against Longwell, the
parties executed a CR 2A stipulation in which they agreed to submit to binding
arbitration "[t]he Financial Accounting Claims between the parties" and "[a]ny and
all disputes" about the interpretation of the CR 2A agreement. Because of the
language of the parties' agreement and the strong presumption in favor of
arbitration, the trial court should have ordered the parties to arbitrate their
competing interpretations of the CR 2A agreement. We reverse and remand.
NO. 71121-1-1/2
FACTS
From about 2006 to 2011, CPI and Longwell Arbors LLC were members of
the Arbors at Sunset LLC, the owner of a large residential apartment complex in
Renton, Washington. CPI was the only nonmanaging member, holding 80
percent of the outstanding member interests. Longwell Arbors was the managing
member of the project, holding the remaining 20 percent interest. Longwell
Company was the property management company for the Arbors at Sunset.
Stanley Xu and his wife, Nanling Chen, owned and were members of Longwell
Arbors and Longwell Company.
On June 1, 2010, CPI filed suit in King County Superior Court (CPI
litigation) against Longwell Arbors, Longwell Company, Stanley Xu, and Nanling
Chen (collectively Longwell), alleging mismanagement and numerous breaches
of the parties' operating agreement. Among CPI's claims were allegations of
financial accounting irregularities during Longwell's management of Arbors at
Sunset. CPI asserted financial damages claims and sought an accounting as
well as the removal of Longwell as managing member.
On August 5, 2011, CPI and Longwell executed a CR 2A stipulation
settling some issues and reserving others for arbitration. The CR 2A agreement
confirmed CPI's replacement of Longwell as managing member. It provided that
Longwell would retain certain consent rights and its 20 percent interest as a
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nonmanaging member. The agreement further provided, "The Financial
Accounting Claims between the parties shall be submitted to binding arbitration
before the Hon. Terry Lukens (Ret.) of JAMS [an alternative dispute resolution
service] if they cannot be resolved between the parties," specifying, "[c]laims
other than Financial Damages Claims are excluded from the Arbitration." It
detailed CPI's duties as managing member and its obligations if it decided to
solicit offers for the sale of the property. The agreement provided the CPI
litigation "shall be dismissed with prejudice without an award of fees or costs to
either party." And it concluded, "Any and all disputes concerning the
interpretation or construction of this CR 2A Agreement and all disputes
concerning the enforcement of this agreement shall be resolved by binding
arbitration before the Hon. Terry Lukens (Ret.)."
CPI and Longwell failed to negotiate a resolution of CPI's financial
accounting and damages claims and submitted these claims to Judge Lukens for
arbitration. On February 29, 2012, Judge Lukens made a final arbitration award
to CPI of $317,968.63, which the superior court confirmed on April 2, 2012. In
June 2012, Longwell's 20 percent interest was sold at sheriff's sale, extinguishing
Longwell's interest in Arbors at Sunset.
On September 19, 2013, Longwell filed suit against CPI in King County
Superior Court, claiming financial damages and seeking an accounting as well as
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declaratory and injunctive relief from CPI's alleged breaches of contract and
fiduciary duty as managing member. CPI moved to compel arbitration. The trial
court denied the motion.
CPI appeals.
STANDARD OF REVIEW
We review de novo a trial court's decision about the arbitrability of a
dispute.1 In interpreting a CR 2A agreement, we apply normal contract principles
and also review de novo a trial court's interpretation of contract language.2
ANALYSIS
CPI claims that the superior court should have compelled arbitration
because the CR 2A agreement requires that the parties arbitrate "all financial
accounting claims arising between them" and therefore that the trial court erred
by denying its motion to compel arbitration. Longwell responds, "The limited
arbitration agreement negotiated by the parties regarding certain specified
claims—arising out of a prior lawsuit—cannot be fairly said to encompass the
issues in this litigation."
The uniform arbitration act, chapter 7.04A RCW, vests courts with the
power to determine "whether an agreement to arbitrate exists or a controversy is
1 Davis v. Gen. Dynamics Land Svst., 152 Wash. App. 715, 718, 217 P.3d
1191 (2009).
2 In re Marriage of Pascale, 173 Wash. App. 836, 841, 295 P.3d 805 (2013).
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subject to an agreement to arbitrate."3 A court determines the arbitrability of a
dispute by examining the arbitration agreement between the parties.4
"'[Ajrbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit.'"5 But if the
reviewing court "can fairly say that the parties' arbitration agreement covers the
dispute, the inquiry ends because Washington strongly favors arbitration."6
"Absent an express provision excluding a particular type of dispute, 'only the
most forceful evidence of a purpose to exclude a claim from arbitration can
prevail.'"7 In other words, unless the court can say with "positive assurance" that
the arbitration provision allows no interpretation covering the asserted dispute,
the dispute is arbitrable.8 And "once a party moves to compel arbitration of a
particular dispute and the court determines that the parties have agreed to
arbitrate that dispute, the court must order the parties to proceed to arbitration"
3 RCW 7.04A.060(2); Saleemi v. Doctor's Assocs., Inc., 176 Wash. 2d 368,
376, 292 P.3d 108 (2013).
4 Pascale, 173 Wash. App. at 842.
5 Satomi Owners Ass'n v. Satomi, LLC, 167 Wash. 2d 781, 810, 225 P.3d
213 (2009) (internal quotation marks omitted) (quoting Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002)).
6 Davis. 152 Wash. App. at 718.
7 ML Park Place Corp. v. Hedreen, 71 Wash. App. 727, 739, 862 P.2d 602
(1993) (quoting Local Union 77. Int'l Bhd. of Elec. Workers v. Pub. Util. Dist. No.
1 of Grays Harbor County, 40 Wash. App. 61, 65, 696 P.2d 1264 (1985)).
8 ML Park Place. 71 Wash. App. at 739 (quoting United Steelworkers v.
Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S. Ct. 1347, 4 L. Ed. 2d
1409(1960)).
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NO. 71121-1-1/6
absent grounds for revocation of the contract.9 Courts apply an "inexorable
presumption" in favor of arbitration, and the reviewing court should resolve any
doubts about the applicability of an arbitration agreement in favor of arbitrability.10
Although the question of whether the parties have agreed to arbitrate is a judicial
one, the parties may provide otherwise in their agreement.11 And if the reviewing
court concludes that the dispute involves an interpretation of an agreement to
arbitrate, determining the proper interpretation is the duty of the arbitrator and not
the court.12
Here, paragraph four of the CR 2A agreement provides, "The Financial
Accounting Claims between the parties shall be submitted to binding arbitration
before the Hon. Terry Lukens (Ret.) of JAMS if they cannot be resolved between
the parties." Paragraph four continues, "Examples of the Financial Accounting
Claims are: problems in the manipulation of capital accounts; improper
withdrawals or distributions; improper payments to any of the parties; Longwell
loan account claim; the Guaranteed Cost overrun claim; Pool II and Longwell
9 Kamava Co. v. Am. Prop. Consultants. Ltd., 91 Wash. App. 703, 720, 959
P.2d 1140 (1998).
10 W.A. Bottinq Plumbing & Heating Co. v. Constructors-Pamco, 47 Wn.
App. 681, 685, 736 P.2d 1100 (1987); Pascale, 173 Wash. App. at 842; Heights at
Issaguah Ridge Owners Ass'n v. Burton Landscape Grp.. Inc.. 148 Wash. App.
400, 405, 200 P.3d 254 (2009).
11 See First Options of Chicago. Inc. v. Kaplan. 514 U.S. 938, 943, 115 S.
Ct. 1920, 131 L. Ed. 2d 985 (1995); Townsend v. Quadrant Corp.. 153 Wash. App.
870, 879, 224 P.3d 818 (2009); Bottinq. 47 Wash. App. at 683.
12 Meat Cutters Local No. 494 v. Rosauer's Super Mkts.. Inc.. 29 Wash. App.
150, 154, 627P.2d 1330(1981).
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NO. 71121-1-1/7
Arbors capital account balances and alleged improper withdrawals." The
agreement explicitly excludes from arbitration only "[cjlaims other than Financial
Damages Claims."
In its order denying CPI's motion to compel arbitration, the trial court
explained, "The CR 2A agreement... did not refer 'all' Financial Accounting
Claims to arbitration; it only referred 'the' Financial Accounting Claims between
the parties in that lawsuit. It, on its face, does not cover the plaintiffs' claims in
this lawsuit."
In support of the trial court's decision, Longwell asserts that
the parties did not agree to resolve all claims arising out of the
Operating Agreement by arbitration. Nor did they even agree to
resolve all financial claims by arbitration. Instead, they only agreed
to resolve certain claims, raised in the CPI Litigation and expressly
identified in the CR 2A Agreement."
Like the trial court, Longwell focuses on the somewhat ambiguous language of
paragraph four. Although the word "the" implies specificity, the phrase "[t]he
Financial Accounting Claims between the parties" is susceptible to more than
one reasonable interpretation. It could mean the existing claims of the CPI
litigation. But it does not expressly exclude other financial accounting claims
between these parties that may arise at other times or in other contexts.
Moreover, the use of examples instead of an all-inclusive list appears to widen
the provision's scope, especially when certain examples include broader phrases
such as "improper payments to any of the parties."
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NO. 71121-1-1/8
Most importantly, neither the trial court's order nor Longwell's argument
squarely addresses paragraph eight, the final provision of the agreement. In this
paragraph, the parties agreed, "Any and all disputes concerning the interpretation
or construction of this CR 2A Agreement and all disputes concerning the
enforcement of this agreement shall be resolved by binding arbitration before the
Hon. Terry Lukens (Ret.)." The interpretation and construction of the CR 2A
agreement depends on the meaning of the phrase, "[t]he Financial Accounting
Claims between the parties." Many of Longwell's 2013 claims against CPI are
similar to CPI's 2010 claims, including financial damages claims for breaches of
contract and fiduciary duty.
The only disputes that the CR 2A agreement explicitly excludes from
arbitration are "[c]laims other than Financial Damages Claims." Especially when
considered with paragraph four's language reasonably permitting a more
expansive interpretation, this is not "forceful evidence of a purpose to exclude"
from arbitration all financial damages claims except those asserted by CPI in the
2010 litigation. To the contrary, paragraph eight requires arbitration of "[a]ny and
all disputes" concerning the interpretation, construction, or enforcement of the
CR 2A agreement. Because this case involves exactly this type of dispute, we
"can fairly say that the parties' arbitration agreement covers the dispute."13 Given
13 Davis, 152 Wash. App. at 718.
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NO. 71121-1-1/9
the presumption in favor of arbitration, our inquiry ends. We hold that the trial
court erred in denying CPI's motion to compel arbitration.
CONCLUSION
Because the parties agreed in their CR 2A agreement to arbitrate "[a]ny
and all" disputes about its interpretation and we can fairly say that the current
dispute concerns the interpretation of the CR 2A agreement, the trial court erred
by denying CPI's motion to compel arbitration. We reverse and remand for
further proceedings consistent with this opinion.
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WE CONCUR:
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