(Super. Ct. No. 30-2011-00462521) Appeal from an order of the Superior Court of Orange County, Nancy Wieben Stock, Judge.
The opinion of the court was delivered by: Aronson, Acting P. J.
CERTIFIED FOR PUBLICATION
Plaintiffs and respondents*fn1 invested in six investment funds defendants and appellants*fn2 created over a 10-year period to purchase and manage six portfolios of commercial real estate. Each fund was separate from the other funds and presented two distinct investment options. Investors could become a member or partner in the entity that held title to the entire portfolio or investors could purchase a fractional ownership interest in a specific property included in the portfolio without becoming a member or partner in the entity. Some Plaintiffs became members in one or more of the investment funds, some became joint owners of one or more individual properties, and some did both.
Defendants filed six motions seeking to compel six of the 12 groups of Plaintiffs to arbitrate their claims relating to these investments. Defendants could not compel all Plaintiffs to arbitrate their claims because Defendants failed to include arbitration provisions in the governing documents for each investment option in each fund. Based on Code of Civil Procedure section 1281.2, subdivision (c),*fn3 the trial court denied all six motions because requiring some Plaintiffs to pursue their claims in an arbitral forum while others pursued their claims in a judicial forum would be inefficient and could lead to conflicting rulings.
Section 1281.2(c) grants a trial court discretion to refuse to enforce written arbitration agreements when (1) a party to the agreement also is a party to pending litigation with a third party who did not agree to arbitration; (2) the pending third-party litigation arises out of the same transaction or series of related transactions as the claims subject to arbitration; and (3) the possibility of conflicting rulings on common factual or legal issues exists. A trial court has no discretion to deny arbitration under section 1281.2(c) unless all three of these conditions are satisfied.
Because Defendants failed to request a statement of decision, we must presume the trial court found section 1281.2(c)'s conditions were satisfied on each of Defendants' six motions. We must, however, reverse the trial court's decision because the record lacks substantial evidence to support the implied finding each of section 1281.2(c)'s conditions were satisfied on each motion. We remand the matter for the court to consider each motion under section 1281.2(c). As explained below, some groups of Plaintiffs may satisfy section 1281.2(c)'s conditions, but we cannot make that determination on the current record.
FACTS AND PROCEDURAL HISTORY
The Colton Entities are in the business of purchasing and managing commercial real property. They create separate "funds," formed as either limited partnerships or limited liability companies, to solicit investors and take title to each portfolio of commercial office buildings they purchase. One of the Colton Entities serves as the general partner or managing member for each fund and manages the portfolio of properties the fund holds. The Coltons and McClintock are directors, officers, and shareholders of the Colton Entities.
Each fund the Colton Entities created had two types of investors. "Share investors" purchased an interest in the fund itself and became either limited partners or members depending on whether the fund was formed as a limited partnership or a limited liability company. Share investors did not hold title to any of the commercial properties held in the fund, but rather held a passive ownership interest in the entity that held title. "Tenant in common investors" purchased tenant-in-common interests in one or more of the commercial properties that made up a fund. Tenant-in-common investors held an ownership interest in specific properties along with the fund itself, but had no right to participate in the day-to-day management of the properties. Unlike share investors, tenant-in-common investors did not become limited partners or members in the entity that controlled the fund.
The Colton Entities issued a separate private placement memorandum to solicit investors in each fund. They first solicited share investors for a fund and then later solicited tenant-in-common investors for specific properties the fund purchased. Share investors executed a subscription agreement and either an operating agreement or a limited partnership agreement that defined the interest they purchased and the Colton Entities' rights and obligations. Tenant-in-common investors executed a subscription agreement, tenant-in-common agreement, and property management agreement to define their interests in the property they purchased and the Colton Entities' rights and obligations regarding the property.
At issue in this case are six funds the Colton Entities created: (1) Integrity Fund II, LP; (2) Provider Fund, LP; (3) Advantage Fund, LLC; (4) Discovery Fund, LLC; (5) Freedom Fund, LLC; and (6) Victory Fund, LLC. The Colton Entities created and solicited investors for each of these funds at different times between 1994 and 2004. Each of these funds had both share investors and tenant-in-common investors, owned separate properties, and were governed by separate contracts with their investors.*fn4
Plaintiffs comprise approximately 250 investors in these six funds. Some Plaintiffs are share investors only, some are tenant-in-common investors only, and some are both. Similarly, some Plaintiffs invested in just one fund while others invested in multiple funds. The only fund for which there is not at least one Plaintiff who is a share investor and one Plaintiff who is a tenant-in-common investor is the Integrity Fund, where no Plaintiff was a share investor.
Plaintiffs filed this action in March 2011, alleging a wide variety of claims against Defendants based on their fraudulent conduct in soliciting investors and managing the properties held by the funds. Plaintiffs filed a first amended complaint in August 2011 alleging some combination of the following 12 causes of action regarding each fund for a total of 70 causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) fraudulent concealment; (5) constructive fraud; (6) unfair business practices; (7) accounting; (8) declaratory relief; (9) unjust enrichment; (10) failure to make financial information available in violation of Corporations Code sections 17106 and 15903.4; (11) elder abuse under California law; and (12) elder abuse under Utah law.
Defendants filed six motions to compel different groups of Plaintiffs to arbitrate their claims based on arbitration agreements certain Plaintiffs signed when they purchased their investments. Specifically, Defendants filed separate motions to compel the following groups of Plaintiffs to arbitrate their claims: (1) Advantage Fund share investors; (2) Discovery Fund share investors; (3) Freedom Fund share investors; (4) Freedom Fund tenant-in-common investors; (5) Victory Fund share investors; and (6) Victory Fund tenant-in-common investors. Defendants did not seek to compel arbitration with Plaintiffs who are Integrity Fund tenant-in-common investors, Provider Fund share investors, Provider Fund tenant-in-common investors, Advantage Fund tenant-in-common investors, or Discovery Fund tenant-in-common investors because they did not sign an arbitration agreement.
Plaintiffs opposed the motions, arguing the trial court should refuse to enforce the arbitration agreements under section 1281.2(c) because Defendants would remain parties in pending litigation with those investors who did not agree to arbitration, which created the possibility of conflicting rulings on common factual or legal issues. Only the Freedom Fund tenant-in-common investors opposed the motions on the ground they did not agree to arbitrate their claims. All other groups of Plaintiffs conceded they agreed to arbitration. No group of Plaintiffs argued the arbitration agreements were unenforceable on any ground other than section 1281.2(c).
The trial court denied all six motions: "Pursuant to . . . §1281.2(c), the Court has determined that, although some of the Investors in some of the Funds referenced in the Complaint are likely bound by contractual arbitration agreements, there are inter-related issues between those Investors and claims and Investors and claims, in the same Complaint, that would not be subject to arbitration such that that [sic] the splitting of the two, would result in an inappropriate consumption and duplication of financial resources, raise the potential of incomplete remedies, inconsistent rulings and substantial delays for either the arbitration Investors or the Court Investors." In denying Defendants' motions, the trial court did not specifically rule on whether the Freedom Fund tenant-in-common investors agreed to arbitrate their claims. Defendants timely appealed.*fn5
A. Governing Legal Principles Regarding Motions to ...