Metz v. Kavanaugh CA2/7

Filed 3/17/21 Metz v. Kavanaugh CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
CAREY METZ, B294388
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC672803)
v.
RYAN KAVANAUGH,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, John P. Doyle and Dalila C. Lyons, Judges.
Dismissed.
Raines Feldman, Miles J. Feldman and Robert M. Shore for
Plaintiff and Appellant.
Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg
& Rhow, Ekwan E. Rhow, Thomas R. Freeman, Thomas V.
Reichert, Joyce J. Choi and Tristan S. Favro for Defendant and
Appellant.
_________________
Carey Metz, a hedge fund investor, filed this action against
Ryan Kavanaugh, the founder and chief executive officer of
Relativity Holdings LLC doing business as Relativity Media
(Relativity), alleging Kavanaugh fraudulently induced Metz into
investing $12.5 million in Relativity. The trial court granted
Kavanaugh’s motion to compel arbitration under the parties’
arbitration agreement and ordered the arbitrator to determine
which party was responsible for paying the initial arbitration fees
under the agreement as the initiator of the arbitration. Metz
then moved for an order compelling Kavanaugh to file the
arbitration so Metz would not be deemed the initiating party. On
November 13, 2018 the trial court denied Metz’s motion and
ordered him to file the arbitration, but it ordered Kavanaugh to
advance the $300 filing fee (with the arbitrator later to determine
allocation of the arbitration fees). Metz appealed the
November 13 order. We agree with Kavanaugh the November 13
order is a nonappealable interlocutory order and grant his motion
to dismiss. We also dismiss Kavanaugh’s cross-appeal.1
FACTUAL AND PROCEDURAL BACKGROUND
A. The Investments
As alleged in the amended complaint, in late 2013
Kavanaugh induced Metz to make a $10 million investment in
Relativity, a film studio Kavanaugh founded and headed.
Kavanaugh represented that Relativity had a proprietary
computer model for predicting the success of a movie, it was able
1 In his motion to dismiss, Kavanaugh consented to dismissal
of his cross-appeal if we dismiss Metz’s appeal.
2
to raise the necessary capital, and it had the ability to refinance
its debt.
In 2015 Relativity was facing maturing debt and a
potential liquidity crisis, so Kavanaugh sought a second
investment from Metz to serve as bridge financing and avoid
bankruptcy. Metz alleges that to induce him to invest again,
Kavanaugh provided him inflated valuations of Relativity’s
assets and falsely stated Kavanaugh and other investors had
made multimillion dollar investments in Relativity. According to
Metz, Kavanaugh also provided a personal guaranty that he
would repay Metz’s $2.5 million investment if Relativity later
filed for bankruptcy and the company’s equity was wiped out. In
reliance on these representations and Kavanaugh’s personal
guaranty, on June 24, 2015 Metz invested an additional $2.5
million in Relativity.
On July 30, 2015 Relativity filed for Chapter 11
bankruptcy, and Metz’s equity interest was lost. Metz alleges
Kavanaugh at that time reiterated his personal guaranty of
Metz’s $2.5 million investment. Kavanaugh denies he ever made
a guaranty, instead claiming he granted Metz a share of
Relativity’s postbankruptcy “units,” which were worth more than
Metz’s $2.5 million investment.
On February 1, 2016 Kavanaugh and Metz entered into an
economic participation agreement (Agreement) under which
Kavanaugh granted to Metz a financial interest in 5 million
membership units in the new Relativity entity following its
bankruptcy restructuring. Under the Agreement, Metz agreed to
release all “claims, and demands, of every kind and nature
whatsoever, whether now known or unknown” against
Kavanaugh and Relativity.
3
The Agreement included in paragraph 17 an arbitration
provision that stated, “Any controversy or claim arising out of or
relating to this Agreement, its enforcement, arbitrability, or
interpretation shall be submitted to final, confidential, and
binding expedited arbitration at ADR Services, Inc. . . . in
accordance with California Code of Civil Procedure §§ 1280 et
seq. . . .” The arbitration provision stated further, “The [p]arty
initiating the arbitration will be solely responsible for the
payment of the arbitrator’s fees. The prevailing Party, as
determined by the arbitrator, shall be entitled to an award of
their reasonable attorneys’ fees and all costs . . . and other typical
costs associated with an arbitral proceeding including the
arbitrator’s fees.”
B. Filing of This Action and Disputes Over Arbitration of
Metz’s Claims
Metz filed this action on August 17, 2017, after Kavanaugh
refused to return his $2.5 million investment. The amended
complaint asserted causes of action for fraudulent inducement,
negligent representation, and false promise with respect to the
2013 and 2015 investments.
On August 30, 2017 Kavanaugh filed a demand for
arbitration with ADR Services, Inc. (ADR) alleging Metz
breached the Agreement by publicly filing the lawsuit and
thereby disclosing confidential information. Metz demurred and
moved for a determination that Metz’s superior court claims were
not arbitrable. A hearing was set for April 24, 2018.
On September 21, 2017, while his arbitration claim was
pending, Kavanagh filed a motion to dismiss Metz’s superior
court action, or in the alternative, to compel arbitration. Metz in
his opposition noted he intended to argue the parties’ dispute was
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not arbitrable, but he agreed that under the Agreement this was
a question for the arbitrator. Metz urged the court not to dismiss
the action, and instead to stay it until the arbitrator decided the
merits or determined one or more issues were not arbitrable.
After a hearing, on October 17, 2017 the trial court2
granted Kavanaugh’s motion to compel arbitration, finding, “[A]s
both parties acknowledge, the [Agreement] contains an
arbitration provision which requires the arbitrability of claims to
be decided in arbitration. . . . Because [Kavanaugh] contends all
of [Metz’s] claims arise from the agreement, this action must be
submitted to arbitration.” The court stayed the action and set an
order to show cause re dismissal and status conference (later
continued to June 8, 2018) to allow the arbitrator an opportunity
to rule on arbitrability and the scope of the arbitration.
However, on March 30, 2018, Kavanaugh withdrew his
arbitration claim (before the hearing on Metz’s motions). The
arbitrator notified the parties the arbitration would be closed
because Metz never submitted his affirmative claims for
arbitration, and therefore Metz could only obtain a remedy by
initiation of a new arbitration or by stipulation of the parties.
In Metz’s status conference report for the June 8, 2018
status conference, he asked the trial court to reinstate the action,
arguing that because Kavanaugh had withdrawn his request for
arbitration with ADR, if Kavanaugh wanted to arbitrate Metz’s
claims, he would need to file a new motion to compel arbitration.
Metz argued Kavanaugh’s dismissal of his arbitration claim
rendered the Agreement unconscionable because if Metz had to
file a new arbitration, he would be deemed the “initiating” party
under the Agreement responsible for paying the initial
2 Judge John P. Doyle.
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arbitrator’s fees. The court set a briefing schedule and hearing
on another motion by Kavanaugh to compel arbitration.
On June 14, 2018 Kavanaugh filed a “motion to compel
compliance with October 17, 2017 order compelling arbitration
and dismiss[al].” Kavanaugh argued he had not waived
arbitration of Metz’s claims by dismissing his arbitration against
Metz, and requiring the initiating party to pay the arbitrator’s
fees did not make the Agreement unconscionable because the
prevailing party could later recover his attorneys’ fees and costs
(including the arbitration fees). In his opposition, Metz argued
he could not be forced to pay the initial arbitration fees by filing
the arbitration, relying on Spence v. Omnibus Industries (1975)
44 Cal. App. 3d 970, 975 (Spence), which held as to a consumer
contract that “under the rules governing contracts of adhesion, a
provision that the parties shall settle their dispute by arbitration
may not be so interpreted as to force a claimant into the position
of one initiating arbitration when he has, in fact, chosen to waive
these proceedings.” (Ibid.)
After hearing argument of counsel, on June 26, 2018 the
trial court adopted its tentative ruling granting Kavanaugh’s
motion and staying the action. The court indicated in its ruling
that Metz had failed to comply with the trial court’s October 17,
2017 order, “although he attempted to,” because he never filed a
claim in the arbitration. The court ordered Metz “to file a claim
in arbitration, and to proceed therein forthwith. If [Metz] is
correct that his claims are not arbitrable, then presumably that
will be so determined, an outcome that would substantially
mitigate his arbitration fees.” Further, “[t]he issue of who shall
pay arbitration fees shall be referred to the arbitrator.” As the
court had clarified at the hearing, “This is delegating this fees
issue to the arbitrator. That’s all it is.” The court’s order
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instructed Kavanaugh’s counsel to draft a proposed order framing
the issue for the arbitrator.
After submission of competing orders by the parties, on
July 23, 2018 the trial court signed Metz’s revised proposed order
granting Kavanaugh’s motion, which provided, “The parties are
[ordered] to arbitrate with ADR Services, Inc., the arbitrability of
Metz’s claims,” and further, “the Arbitrator shall determine
which party is liable, as ‘the Party initiating the arbitration,’ for
the payment of the arbitrator’s fees while the arbitration
proceeding is pending, pursuant to paragraph 17 of the
[Agreement].” The final order was silent as to which party had to
file the arbitration.
C. November 13, 2018 Order Compelling Metz To File the
Arbitration and Kavanaugh To Advance the Fees
Following entry of the July 23, 2018 order, neither party
initiated the arbitration with ADR.3 On October 18, 2018 Metz
filed in the trial court a “motion to set deadlines” seeking an
order compelling Kavanaugh “to take the administrative steps
necessary to initiate arbitration” by November 27, 2018, or be
deemed to have waived his right to arbitrate. Citing Spence,
supra, 44 Cal.App.3d at page 975, Metz argued, “After securing
an order compelling arbitration, Kavanaugh has refused to
3 Under ADR’s rules, either party may initiate an
arbitration. Under rule 5(A)(1), a claimant may submit a
demand for arbitration. Alternatively, under rule 5(C), “[a]n
arbitration may also be commenced via submission of a Court
Order compelling arbitration. The Court Order shall be
submitted to ADR Services together with a copy of the parties’
arbitration agreement as well as any Complaint, Answer, Cross-
Complaint or other pleading filed with the Court.”
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initiate an arbitration in the manner provided by the rules of
ADR Services because he wants to force Metz, who does not want
to arbitrate, to initiate the arbitration and thereby assume
responsibility for paying the arbitrator’s fees in the first instance.
California law does not allow Kavanaugh to impose this burden
on Metz.” Kavanaugh opposed the motion, arguing Spence was
inapplicable because it only applied to consumer contracts of
adhesion, and further, the plaintiffs there only disputed payment
of the fees, not their obligation to file the arbitration.
After a hearing, on November 13, 2018 the trial court4
issued a written order denying Metz’s motion (November 13
order). The court ordered Metz to “comply with Judge John P.
Doyle’s orders and file the arbitration as soon as possible” and
Kavanaugh “to conditionally pay the initial $300 administrative
filing arbitration fees and any arbitration fee until the arbitrator
decides who ultimately pays for all the arbitration fees based on
the agreement at issue in this case.”5 The order explained that
the court “previously ordered the parties twice to file an
arbitration and that the arbitrator shall determine who pays the
arbitration fees,” and thus “the issue of what party is to file the
arbitration has already been decided . . . and [Metz’s] request for
an order compelling [Kavanaugh] to file the arbitration is nothing
more than an improperly presented motion for reconsideration.”
Further, “the specific narrow issue . . . not decided by Judge
Doyle” was limited to who should initially pay the arbitrator’s
4 Judge Dalila C. Lyons presided over the November 9, 2018
hearing and ruled on Metz’s motion.
5 Metz previously filed the ADR fee schedule reflecting that a
party filing a demand for arbitration with ADR is obligated to
pay a nonrefundable $300 administrative filing fee.
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fees. The court concluded that for the limited purpose of ruling
on the motion, Kavanaugh “is the party that has initiated
arbitration because but for [Kavanaugh’s] motions to compel
arbitration, [Metz] would not be required to bring his claims
before an arbitral body. Thus, the [c]ourt finds [Kavanaugh]
responsible for the initial arbitrator fees while the arbitrator
determines the arbitrability of Metz’s claims and which party is
liable ‘as the Party initiating arbitration’ for payment of ALL the
arbitrator’s fees, including the initial fees, while the arbitration
proceeding is pending.” The order clarified, however, that “[t]he
fact that Metz is filing the arbitration does not necessarily mean
that the arbitrator will decide that Metz will pay all the
arbitration fees. Nor does the fact that [Kavanaugh] will pay the
initial fees as ordered herein be construed as [Kavanaugh] being
liable for all the fees per the agreement at issue.” The court
ordered the stay of the action to remain in place until the
completion of the arbitration.
Metz filed a timely notice of appeal from the “[o]rder of
November 13, 2018 and all orders fairly subsumed thereby
pursuant to [Spence, supra, 44 Cal. App. 3d 970].” Kavanaugh
cross-appealed from the November 13 order. On January 9, 2020
Kavanaugh filed a motion to dismiss Metz’s appeal on the
grounds an order compelling arbitration is not appealable and
Spence is inapplicable.6 Metz opposed the motion.
6 Kavanaugh moved in the alternative for an order striking
the portions of Metz’s opening brief contending Metz’s claims are
not arbitrable, arguing that even if Metz were permitted under
Spence to appeal the issue of who should file the arbitration,
Metz could not appeal other aspects of the order or the court’s
previous orders compelling arbitration and delegating issues of
9
DISCUSSION
Metz does not dispute that the November 13 order
compelling him to file the arbitration is an interlocutory order
that is not specifically appealable under Code of Civil Procedure
section 904.1. Instead, he argues the order falls within the
exception to nonappealability recognized in Spence, supra,
44 Cal. App. 3d 970. In Spence, homeowners sued a builder who
was renovating their home for breach of contract and fraud,
seeking $37,000 in damages. (Id. at p. 972.) The builder filed a
petition for arbitration pursuant to an arbitration clause in the
parties’ contract, which was printed in small print on the back of
the builder’s standardized form agreement. (Ibid.) The
agreement also provided the arbitration was subject to the rules
of the American Arbitration Association, including a rule
requiring the initiating party to pay the filing fee. (Id. at p. 975.)
The trial court granted the builder’s petition to compel
arbitration and ordered the homeowners to pay the filing fee.
(Ibid.) The homeowners immediately appealed the order
compelling them to pay the filing fee but did not appeal the order
compelling arbitration. (Id. at p. 973.)
The Court of Appeal reversed and held the builder either
had to pay the filing fee or defend the claims in superior court.
(Spence, supra, 44 Cal.App.3d at p. 975.) The court concluded the
arbitrability to the arbitrator. Because we grant the motion to
dismiss, we do not reach Kavanaugh’s alternative motion to
strike. Likewise, we do not address Metz’s argument the orders
compelling arbitration are reviewable as intermediate orders
affecting the November 13 order.
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trial court’s order was appealable under the collateral order rule,
explaining, “‘“A necessary exception to the one final judgment
rule is recognized where there is a final determination of some
collateral matter distinct and severable from the general subject
of the litigation. If, e.g., this determination requires the
aggrieved party immediately to pay money or perform some other
act, he is entitled to appeal even though litigation of the main
issue continues.”’” (Id. at p. 976; see Lachkar v. Lachkar (1986)
182 Cal. App. 3d 641, 645, fn. 1 [Court of Appeal considered
defendants’ appeal of order requiring defendants to pay plaintiffs’
costs and attorneys’ fees they incurred in moving to compel
arbitration as a collateral order under Spence].) In reaching its
conclusion, the Court of Appeal focused on the “strong . . . judicial
concern regarding the weaker bargaining powers of consumers.
The use of standardized or mass-produced agreements containing
a profusion of provisions which allow the stronger party to dictate
the terms to the weaker party is viewed with judicial concern.”
(Spence, at p. 974.) The court emphasized that requiring the
homeowners to pay a $720 filing fee (instead of the superior
court’s $50 filing fee) to resolve their dispute “might well deprive
them of any forum for resolving their complaints.” (Id. at
pp. 973-976.)
The collateral order exception recognized in Spence does
not apply to the November 13 order. In contrast to the order in
Spence, the order here compelled Kavanaugh, not Metz, to pay
the arbitration filing fees. Indeed, the trial court ordered
Kavanaugh to advance the fees “because but for [Kavanaugh’s]
motions to compel arbitration, [Metz] would not be required to
bring his claims before an arbitral body,” a holding consistent
with Spence. Although the trial court ordered Metz to file the
arbitration (the performance of an act), this was simply an
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administrative step to commence the arbitration. As the
plaintiff, it was Metz’s refusal to file the arbitration that
impeded prosecution of his claims; neither the terms of the
Agreement nor the November 13 order deprived Metz “of any
forum for resolving [his] complaints.”7 (Spence, supra,
44 Cal.App.3d at p. 976.) Metz contends that being compelled to
file the arbitration could result in his having to pay “thousands of
dollars in fees to the Arbitrator merely to have his case heard.”
But the November 13 order clarified that the court’s provisional
resolution (compelling Metz to file the arbitration and
Kavanaugh to pay the arbitration fees) would not limit the
arbitrator’s discretion to decide who was responsible for the
arbitration fees. Metz has articulated no other harm that flows
from being compelled to file the arbitration.8
7 Further, the underlying premise of Spence that parties
should not be denied a forum as a result of their inability to pay
the arbitration fee does not apply here, where the Agreement was
negotiated between two sophisticated investors with tens of
millions of dollars at issue. Certainly the payment of a $300
filing fee and the initial costs of arbitration will not prevent Metz
from having his day in court.
8 The cases cited by Metz finding collateral orders to perform
an act appealable are inapposite because none of the cited cases
was decided in the context of a motion to compel arbitration. (See
Smith v. Smith (2012) 208 Cal. App. 4th 1074, 1083 [appeal of a
trial court order declining to destroy documents produced in
connection with a nonappealable temporary custody order];
Mercury Interactive Corp. v. Klein (2007) 158 Cal. App. 4th 60, 75
[appeal of an order granting a third party motion of the news
media to unseal pleadings]; Machado v. Superior Court (2007)
148 Cal. App. 4th 875, 883-885 [because order disqualifying an
attorney is appealable as a collateral order, the order is not
12
Finally, Metz contends that even if the November 13 order
is nonappealable, we should treat his appeal as a petition for writ
of mandate and should consider the petition on the merits. “‘An
appellate court has discretion to treat a purported appeal from a
nonappealable order as a petition for writ of mandate, but that
power should be exercised only in unusual circumstances.’”
(Williams v. Impax Laboratories, Inc. (2019) 41 Cal. App. 5th 1060,
1071-1072; see Olson v. Cory (1983) 35 Cal. 3d 390, 401 [“[The]
power to treat the purported appeal as a petition for writ of
mandate . . . should not [be] exercise[d] . . . except under unusual
circumstances.”].) “‘Routine granting of requests to treat
improper appeals as writs where there are no exigent reasons for
doing so would only encourage parties to burden appellate courts
with reviews of intermediate orders.’” (Calhoun v. Vallejo City
Unified School Dist. (1993) 20 Cal. App. 4th 39, 42, disapproved of
on another ground in K.J. v. Los Angeles Unified School Dist.
(2020) 8 Cal. 5th 875, 888, fn. 6.)
There are no exceptional circumstances here. Metz cites
several authorities for the proposition that orders compelling
arbitration may be reviewable by writ,9 but the November 13
order is not an order compelling arbitration. Nor did the order
impose any burden or expense on Metz beyond reformatting his
reviewable on appeal from the judgment in the underlying
matter].)
9 See, e.g., Zembsch v. Superior Court (2006) 146 Cal. App. 4th
153, 160 (“writ review of orders compelling arbitration is proper
in at least two circumstances: (1) if the matters ordered
arbitrated fall clearly outside the scope of the arbitration
agreement or (2) if the arbitration would appear to be unduly
time consuming or expensive”).
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complaint as an arbitration demand and statement of claim and
transmitting it to ADR. And even if the arbitrator ultimately
determines Metz is responsible as the initiating party for the
$300 filing fee and the initial arbitration fees, the amount at
issue will be small relative to the value of the case (and the fees
spent by Metz to avoid filing the arbitration). Further, if Metz
prevails in the arbitration, he will be able to recover the fees as
the prevailing party under the Agreement; if he loses, he can
challenge the arbitration award and any award of fees and costs
in a petition to vacate the award. The only thing exceptional
about this matter is the extent to which the parties and their
attorneys believed it was appropriate to spend tens of
thousands of dollars in attorneys’ fees, and consume judicial
resources in the trial and appellate courts, to resolve a dispute
over a $300 filing fee and relatively minimal initial arbitration
costs that the arbitrator will have the authority to reallocate
anyway.
DISPOSITION
The appeal is dismissed. The parties are to bear their own
costs on appeal.
FEUER, J.
We concur:
PERLUSS, P. J. SEGAL, J.
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