Bryan Grigsby et al v. DC 4400 LLC et al

Filing 42

MINUTES OF Motion Hearing held before Judge Christina A. Snyder RE: Plaintiffs' Application to Appoint a Receiver and for a Preliminary Injunction 20 ; Defendants' Motion to Dismiss 36 ; Plaintiffs' Motion to Strike Stephens' De claration attached to the Motion to Dismiss 37 . Plaintiffs request that the Court stay proceedings here pending arbitration rather than dismiss plaintiffs' remaining claims. The Court agrees. Having concluded that the parties must submit the q uestion of arbitrability to an arbitrator, the Court finds a stay appropriate. Proceedings in this case are hereby STAYED pending arbitration pursuant to the arbitration clause of the Agreement. It is ORDERED that this action is hereby removed from t his Court's active caseload until further application by the parties or order of this Court. Plaintiffs' application for appointment of a receiver or for a preliminary injunction is DENIED without prejudice. (Made JS-6. Case Terminated.) Court Reporter: Laura Elias. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

5:16-cv-01809-CAS (SPx)

Title

JS-6

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

Present: The Honorable

Date

‘O’

December 5, 2016

CHRISTINA A. SNYDER

Catherine Jeang

Laura Elias

N/A

Deputy Clerk

Court Reporter / Recorder

Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Ben Eilenberg

Paul Harshaw

Proceedings:

PLAINTIFFS’ APPLICATION TO APPOINT A RECEIVER AND
FOR A PRELIMINARY INJUNCTION (Filed September 8, 2016,
Dkt. 20)
DEFENDANTS’ MOTION TO DISMISS (Filed November 2, 2016,
Dkt. 36)
PLAINTIFFS’ MOTION TO STRIKE STEPHENS’
DECLARATION (Filed November 14, 2016, Dkt. 37)

I.

INTRODUCTION

On August 24, 2016, Bryan Grigsby and Lindsey Maness filed this action against
DC 4400, LLC (“DC 4400”); DC 4x4, LLC (“DC 4x4”); Vantage Investment Holdings,
LLC (“Vantage”); J.T. Stephens; and Does one through ten (collectively “defendants”).
Dkt. 1.
On August 30, 2016, plaintiffs filed an ex parte application for a temporary
restraining order or, alternatively, preliminary injunction as well as seeking the
appointment of a receiver. Dkt. 8. On August 31, 2016, the Court denied plaintiffs’
motion for a temporary restraining order. Dkt. 13. The Court further denied plaintiffs’
motion for a preliminary injunction and appointment of a receiver without prejudice,
subject to renewal after defendants had been properly served in the matter. Id. On
September 1, 2016, defendants, purportedly by special appearance, filed an untimely
opposition to plaintiffs’ initial motion, which the Court had already denied. Dkt. 14.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

5:16-cv-01809-CAS (SPx)

Title

JS-6

December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

On September 8, 2016, plaintiffs filed the application for a preliminary injunction
and motion for the appointment of a receiver now before the Court. Dkt. 20. On
September 26, 2016, defendants filed an opposition, Dkt. 24, and objections to portions
of plaintiff’s evidentiary submissions, Dkt. 25. On October 3, 2016, plaintiffs filed a
reply in support of their motion. Dkt. 28.
On September 29, 2016, defendants filed a motion to dismiss the Complaint. Dkt.
26.
On October 17, 2016, the Court held oral argument on plaintiffs’ application for a
preliminary injunction. At that time, the Court informed the parties of its tentative view
that the matter was likely subject to the arbitration clause of a Joint Venture Agreement
attached to plaintiffs’ complaint, see Dkt. 1 Ex. 1, and that the Court may construe
defendants’ motion to dismiss as a motion to compel arbitration. Thereafter, the Court
took plaintiffs’ application for a preliminary injunction or appointment of a receiver
under submission until after the Court ruled on defendants’ motion to dismiss. Dkt. 33.
On October 20, 2016, plaintiffs filed the operative First Amended Complaint
(“FAC”). Dkt. 31. The FAC asserts fourteen claims, namely, (1) breach of fiduciary
duty by DC 4400 and Stephens; (2) breach of contract by DC 4400 and Stephens; (3)
breach of contract by Stephens; (4) quantum meruit by Stephens; (5) conversion by DC
4400, Vantage, and Stephens; (6) constructive trust against all defendants; (7) intentional
interference with contractual relations by DC 4400 and Stephens, based on plaintiffs’
alleged relationships with clients; (8) intentional interference with prospective economic
advantage by DC 4400 and Stephens; (9) negligent interference with prospective
economic relations by all defendants; (10) intentional interference with contractual
relations by DC 4400 and Stephens, based on plaintiffs’ alleged relationships with their
employees; (11) intentional interference with contractual relations by DC 4400 and
Stephens, based on plaintiffs’ alleged relationship with their landlord; (12) declaratory
relief against DC 4400 and Stephens; (13) trademark infringement by DC 4x4 and
Stephens; and (14) credit card fraud by Stephens.
On October 24, 2016, plaintiffs filed an opposition to defendants’ motion to
dismiss the original complaint. Dkt. 32. On October 31, 2016, defendants filed a reply in
support of their motion to dismiss the original complaint. Dkt. 34. On November 1,
2016, the Court vacated the hearing regarding defendants’ motion to dismiss the original
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
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December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

complaint and denied defendant’s motion as moot in light of plaintiffs’ amended
complaint. Dkt. 35.
On November 2, 2016, defendants filed a motion to dismiss the FAC. Dkt. 36.
Defendants attached a declaration by Stephens to their motion to dismiss the FAC. Dkt.
36-1. On November 14, 2016, plaintiffs filed a motion to strike the aforementioned
declaration by Stephens, Dkt. 37, and an opposition to the pending motion to dismiss,
Dkt. 38. In their opposition, plaintiffs contend that defendants’ motion to dismiss is
mislabeled as such and is, in fact, a motion to compel arbitration. Plaintiffs’ motion to
strike the Stephens declaration was noticed for hearing on December 12, 2016. On
November 21, 2016, defendants’ filed a reply in support of their motion to dismiss the
FAC. Dkt. 40. On November 22, 2016, the Court rescheduled oral argument regarding
plaintiffs’ motion to strike the Stephens declaration from December 12, 2016, to
December 5, 2016, to coincide with oral argument on defendants’ motion to dismiss.
Dkt. 41.
Having carefully considered the parties arguments, the Court finds and concludes
as follows.
II.

BACKGROUND

Plaintiffs are individuals who design and customize racing vehicles as well as
develop prototype vehicle components. Plaintiffs allege that they operate a facility where
they perform their automotive customization work, which they refer to as the Desert
Concepts Shop. FAC ¶¶ 28-29. The parties to this action are principally engaged in a
contract dispute. The parties agree that on or about September 29, 2014, plaintiffs and
DC 4400 entered into a joint venture agreement (“the Agreement”). Id. Ex. 1. DC 4400
is allegedly a single-purpose entity created by Stephens “for his portion” of the
Agreement. Id. ¶ 21. Plaintiffs allege that Vantage was “part of” the Agreement and
that the Agreement entitled plaintiffs to “20%” of Vantage. Id. ¶ 22. Plaintiffs allege
that DC 4x4 is a separate corporate entity created by Stephens. Id. ¶ 28. Plaintiffs allege
that, at all relevant times, each of the defendants was the alter-ego of each other
defendant and acted with a unity of interest such that separate personalities of the
corporate entity and the individual defendants do not in reality exist. Id. ¶ 9.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

5:16-cv-01809-CAS (SPx)

Title

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December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

Pursuant to the Agreement, DC 4400 appears to have agreed that it would provide
initial capital for the joint venture and plaintiffs appear to have agreed that they would
contribute their skills, contacts, and certain equipment to the venture. Id. Ex. 1 at 3-4.
However, the Agreement was silent with regard to the precise amount of DC 4400’s
capital contribution, see id. at 12, and with regard to plaintiffs’ equipment contribution,
see id. at 13. The Agreement provides that:
The Parties agree to use their respective reasonable commercial efforts in
good faith to resolve any disputes arising out of or related to this Agreement.
To the extent that the dispute in question cannot be resolved through such
normal business practices, it shall first be submitted to mediation before a
professional mediator, mutually agreeable to the parties, for a period to last
no more than ninety (90) days, and if such dispute is not settled within such
time, it shall then be settled by binding arbitration before a single arbitrator
in Little Rock, Arkansas, in accordance with the rules of the American
Arbitration Association . . . . The award may be confirmed and enforced in
any court of competent jurisdiction.
Id. at 9. The Agreement further provides that:
any and all matters of dispute between the Parties to this Agreement,
whether arising from the Agreement itself or arising from alleged extra
contractual facts prior to, during or subsequent to the Agreement, including,
without limitation, fraud, misrepresentation, negligence or any other alleged
tort or violation of the contract, shall be governed by, construed and
enforced in accordance with the laws of the State of Arkansas, regardless of
the legal theory upon which such matter is asserted.
Id. Finally, the Agreement provided that it would terminate on September 29, 2015. Id.
at 7. On or around September 29, 2015, the parties signed a written extension of the
Agreement until September 29, 2016. Id. at 15.
Plaintiff alleges that, at an undetermined time, Stephens began using the Desert
Concepts Shop to store his privately-owned vehicles. FAC ¶ 29. Stephens allegedly
began instructing workers at the Desert Concepts Shop to cease work on customer
projects and instead to work on his own vehicles. Id. ¶ 30. “Stephens and/or DC 4400"
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
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December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

also took out a new lease for the Desert Concepts Shop, which removed plaintiffs from
the building lease. Id. ¶ 33.
Plaintiffs’ application for a preliminary injunction derives principally from
Stephens and DC 4400's alleged misappropriation of property from the Desert Concepts
Shop. On July 6, 2016, plaintiffs allegedly visited the Desert Concepts Shop and
discovered that the locks had been changed. Id. ¶ 34. Plaintiffs allege that Stephens or
DC 4400 was removing equipment, vehicles, customer vehicles, records, tools, fixtures,
and other property from the Desert Concepts Shop without plaintiffs’ permission and
moved the materials to Arkansas. Id. ¶¶ 35-36. Stephens also, allegedly, fired all of the
Desert Concepts employees. Id. ¶ 38. Plaintiffs request that the Court issue an order to
“preserve the assets of the Joint Venture” as well as order the “return the assets of
Plaintiffs, and third parties.” Mot. at 12.
The parties agree that the Joint Venture must be wound up and, by its own terms
appears to have expired on September 29, 2016.
III.

DEFENDANTS’ MOTION TO DISMISS
A.

Legal Standard

A motion pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of the claims asserted in a complaint. Under this Rule, a district court
properly dismisses a claim if “there is a ‘lack of a cognizable legal theory or the absence
of sufficient facts alleged under a cognizable legal theory.’ ” Conservation Force v.
Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balisteri v. Pacifica Police Dep't,
901 F.2d 696, 699 (9th Cir. 1988)). “While a complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to
provide the ‘grounds' of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[F]actual allegations must
be enough to raise a right to relief above the speculative level.” Id.
In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all
material allegations in the complaint, as well as all reasonable inferences to be drawn

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
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Case No.

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Title

JS-6

December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

from them. Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998).1 The complaint must be
read in the light most favorable to the nonmoving party. Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001). However, “a court considering a motion to
dismiss can choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth. While legal conclusions can
provide the framework of a complaint, they must be supported by factual allegations.”
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); see Moss v. United States Secret Service,
572 F.3d 962, 969 (9th Cir. 2009) (“[F]or a complaint to survive a motion to dismiss, the
non-conclusory ‘factual content,’ and reasonable inferences from that content, must be
plausibly suggestive of a claim entitling the plaintiff to relief.”). Ultimately,
“[d]etermining whether a complaint states a plausible claim for relief will ... be a contextspecific task that requires the reviewing court to draw on its judicial experience and
common sense.” Iqbal, 556 U.S. at 679.
Defendants’ motion to dismiss is based upon the arbitration clause of the
Agreement. The Federal Arbitration Act (“FAA”) provides that “a contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter arising ...
shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA reflects a “liberal
federal policy favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24(1983)). Normally, the court must determine (1) whether there exists a
valid agreement to arbitrate; and (2) if there is a valid agreement, whether the dispute
falls within its terms. Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th
Cir. 2000). “However, these gateway issues can be expressly delegated to the arbitrator
1

Stephens has submitted a declaration in support of defendants’ motion to
dismiss. Dkt. 36-1. Plaintiffs’ motion to strike the declaration argues that the
Court should not consider Stephens’ new declaration in deciding the motion to
dismiss. Defendants respond by acknowledging that “if this Honorable Court finds
J.T. Stephens’ declaration improper as attached to a motion to dismiss, it should
simply disregard it.” Reply at 2. Plaintiffs are correct that, when considering a
motion to dismiss, the Court must accept the allegations in the operative complaint
as true. Accordingly, the Court declines to consider Stephens’s second declaration
in which he appears to dispute plaintiffs’ factual allegations.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
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Case No.

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Title

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December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

where ‘the parties clearly and unmistakably [delegate arbitrability to an arbitrator].’”
Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (emphasis in Opus Bank)
(quoting AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)).
B.

DISCUSSION

Plaintiffs acknowledge signing the Agreement, which contains a provision
requiring submission of disputes to arbitration. Plaintiffs seek to avoid submission of this
action to arbitration by arguing that not every defendant here was a party to the
Agreement and therefore, according to plaintiffs, not every defendant can compel
arbitration of claims asserted here. Additionally, plaintiffs argue that the Agreement is
unconscionable.
Plaintiffs are correct that not every defendant here signed the Agreement.
However, plaintiffs allege that each of the defendants is an alter-ego for the others and
that the corporate entities against whom they bring claims are not actually distinct from
one another. Plaintiffs allege that they signed the Agreement with DC 4400, FAC ¶ 58,
that Vantage was part of the Agreement, id. ¶ 22, that Stephens is subject to the
Agreement as the actual signer or as the alter-ego of DC 4400, id. ¶ 62, and that DC 4x4
is solely owned by Stephens and an alter-ego of each of the other defendants, id. ¶¶ 9, 28.
Accordingly, plaintiffs’ argument that not every defendant signed the Agreement is
unavailing.
Additionally, the Agreement delegates the question of arbitrability to the arbitrator.
The Ninth Circuit has concluded that “incorporation of the AAA rules constitutes clear
and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.”
Opus Bank, 796 F.3d at 1130. Although the holding of Opus Bank is limited to cases
involving “an arbitration agreement ‘between sophisticated parties,’” id. at 1131 (quoting
Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069, 1057 & n. 2 (9th Cir. 2013)),
“the prevailing trend of case law” has been to apply rule recited in Opus Bank against
sophisticated and non-sophisticated parties alike, Zenelaj v. Handybook Inc., 82 F. Supp.
3d 968, 974 (N.D. Cal. 2015).
The Agreement provides that the parties will follow a dispute resolution process by
first attempting in good faith to resolve disputes, then submitting to a mediator, and
finally by submitting to binding arbitration in accordance with the rules of the American
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UNITED STATES DISTRICT COURT
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BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

Arbitration Association (“AAA”). FAC Ex. 1 at 9. The foregoing process applies to
“any disputes arising out of or related to” the Agreement. Id. Accordingly, the arbitrator
has “the power to rule on his or her own jurisdiction, including any objections with
respect to the existence, scope or validity of the arbitration agreement.” Fadal Machining
Centers, LLC v. Compumachine, Inc., 461 F. App’x 630, 632 (9th Cir. 2011) (quoting
AAA Commercial Arbitration Rules, R-7(a)).
In light of the foregoing, plaintiffs’ arguments that not every defendant here was a
party to the Agreement and that the Agreement is unconscionable are unavailing.
Plaintiff is free to raise these challenges to the arbitrability of their claims with the
arbitrator.
Having concluded that the parties have clearly and unmistakably delegated the
question of arbitrability to the arbitrator, “the only remaining question is whether the
particular agreement to delegate arbitrability—the Delegation Provision—is itself
unconscionable.” Opus Bank, 796 F.3d at 1132. In doing so, the court must examine the
incorporation of the AAA rules into the dispute resolution clause of the Agreement as a
separate “antecedent agreement” that defendants are seeking to enforce. Id. (citing RentA-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010)).
The incorporation of AAA rules into the dispute resolution clause of the
Agreement (“the delegation provision”) was not unconscionable. Plaintiffs contend that
the Agreement is procedurally and substantively unconscionable under California law.
Plaintiffs argue that the Agreement is substantively unconscionable because defendants
have “taken all of Plaintiffs’ property, money, and ability to perform work” while
requiring arbitration across the country and “shifting half the cost of the arbitration onto
Plaintiffs.” Opp’n at 15.
The Agreement is properly interpreted pursuant to Arkansas law, not California
law. Like California law, Arkansas requires that a party show both procedural and
2

2

The Agreement provides that it shall be interpreted pursuant to the laws of the
state of Arkansas. “Federal courts sitting in diversity look to the law of the forum state
when making choice of law determinations.” Hoffman v. Citibank (S. Dakota), N.A.,
546 F.3d 1078, 1082 (9th Cir. 2008). Under California law, there is a “strong policy” in
favor of enforcing “arm’s length contractual choice-of-law provisions.” Nedlloyd Lines
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
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Title

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December 5, 2016

BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

substantive unconscionability. GGNSC Holdings, LLC v. Lamb By & Through
Williams, 487 S.W.3d 348, 356-57 (2016) (2016). However, the Supreme Court of
Arkansas has foreclosed plaintiffs’ argument with respect to the substantive
unconscionability of compelling impoverished parties to pay for arbitration. See id., 487
at 358 (holding that parties’ inability to pay for arbitration could not make an arbitration
agreement substantively unconscionable because such a conclusion runs afoul of a strong
public policy in favor of arbitration, which looks upon arbitration “as a less expensive
and more expeditious means of settling litigation and relieving docket congestion”).3 Nor
B.V. v. Superior Court, 3 Cal. 4th 459, 464 (1992). In determining whether or not to
apply a choice-of-law provision in a contract, the Court must apply a two-part test. Id.
First, the Court must determine “whether the chosen state has a substantial relationship to
the parties or their transaction” or if there is some other reasonable basis for the parties’
choice of law. Id. Second, the Court must determine “whether the chosen state’s law is
contrary to a fundamental policy of California,” and enforce the parties’ choice-of-law
agreement if there is no conflict with a fundamental policy of California. Id. (emphasis
in original).
Plaintiffs allege that Stephens is a resident of Arkansas. Therefore, Arkansas has a
substantial relationship to the parties or their transaction. Id. at 467 (substantial
relationship requirement satisfied where a party resides in the chosen forum).
Furthermore, plaintiffs do not identify any “fundamental” policy of California requiring
the Court to disregard the parties’ negotiated choice of Arkansas law. Accordingly, the
Court will determine whether the Agreement is unconscionable under Arkansas law. See
Nedlloyd, 3 Cal. 4th at 468 (“Because [plaintiff] has identified no fundamental policy of
our state at issue in its essentially contractual dispute with [defendant],” the fundamental
policy rule, “does not apply”).
3

Plaintiffs also argue that the Court should proceed with this action because it will
inevitably return here in light of their inability to pay. As plaintiffs observe, where an
arbitrator terminates proceedings without issuing an award because a party cannot pay the
arbitrator’s fees, the District Court may, ultimately, adjudicate the party’s claims if it
concludes that the party was “unable to pay for [its] share of arbitration.” See Tillman v.
Tillman, 825 F.3d 1069, 1076 (9th Cir. 2016). However, the division of fees under the
Agreement is subject to adjudication by the arbitrator. As in Tillman, the Agreement
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UNITED STATES DISTRICT COURT
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BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

can plaintiffs’ argue that a provision of the Agreement is unconscionable because their
financial status has changed since its negotiation. Id. (focus is on the circumstances
surrounding the negotiation and execution of the contract).
Furthermore, plaintiffs’ must challenge the delegation provision specifically rather
than the Agreement in its entirety. As already discussed, supra n. 3, AAA rules include
numerous provisions by which an arbitrator may seek fees, including up-front deposits.
However, plaintiffs’ have not attempted to demonstrated that the AAA rules regarding
arbitration fees are substantively unconscionable. Although plaintiffs’ challenge to the
fee-splitting arrangement contained in the Agreement might theoretically be applied to
the delegation provision specifically, such a challenge would be “difficult to establish”
because plaintiffs’ challenge is necessarily limited to the costs of an initial arbitrability
finding. See Rent-A-Ctr., W., Inc., 561 U.S. at 74 (declining to evaluate a party’s
analogous arguments when they were not tailored to the specific delegation provision).
Accordingly, plaintiffs’ have not shown the delegation provision contained within
the Agreement to be substantively unconscionable. The parties have an enforceable
agreement to delegate the question of arbitrability to an arbitrator. Therefore, the proper
scope of the parties’ dispute resolution agreement must be decided by an arbitrator who
shall determine whether any or all of plaintiffs’ claims are subject to arbitration.
In light of the foregoing, defendants request dismissal of plaintiffs’ claims with
prejudice. However, the Federal Arbitration Act does not require dismissal of plaintiffs’
claims. 9 U.S.C. § 3 provides:
If any suit or proceeding be brought in any of the courts of the United States
upon any issue referable to arbitration under an agreement in writing for
such arbitration, the court in which such suit is pending, upon being satisfied
that the issue involved in such suit or proceeding is referable to arbitration
here incorporates the rules of the AAA. Pursuant to AAA rules, the arbitrator determines
the amount of deposits required in advance. Id. at 1074. Additionally, the arbitrator may
give one party the option of paying the others’ share. Id. at 1073. Accordingly,
plaintiffs’ argument that this dispute will necessary be resolved by the Court is
unavailing.
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under such an agreement, shall on application of one of the parties stay the
trial of the action until such arbitration has been had in accordance with the
terms of the agreement, providing the applicant for the stay is not in default
in proceeding with such arbitration.

Plaintiffs request that the Court stay proceedings here pending arbitration rather
than dismiss plaintiffs’ remaining claims. The Court agrees. Having concluded that the
parties must submit the question of arbitrability to an arbitrator, the Court finds a stay
appropriate. Said arbitrator may still conclude that this dispute, or some portion of it, is
outside the scope of the parties’ arbitration agreement. Accordingly, dismissal of
plaintiff’s claim with prejudice is inappropriate as it may deprive plaintiff of a forum for
relief. Accordingly, the Court orders the parties to arbitrate their disputes pursuant to the
Agreement’s arbitration clause and stays further proceedings in this action.
IV.

PLAINTIFFS’ APPLICATION TO APPOINT A RECEIVER OR FOR A
PRELIMINARY INJUNCTION

Plaintiffs argue that, even if the Court enforces the arbitration clause of the
Agreement, the Court should grant plaintiff provisional relief pending arbitration.
However, nothing in the Agreement limits the arbitrator’s authority to grant provisional
relief pending a resolution of the parties’ disputes. Where the parties have agreed to
arbitration and thereby agreed to a method for seeking provisional relief, it is
“inappropriate for the district court to grant preliminary injunctive relief.” Simula, Inc. v.
Autoliv, Inc., 175 F.3d 716, 726 (9th Cir. 1999); see also China Nat. Metal Prod.
Imp./Exp. Co. v. Apex Digital, Inc., 155 F. Supp. 2d 1174, 1182 (C.D. Cal. 2001)
(concluding that under Simula, the court had “no authority to grant” provisional relief
under these circumstances).
Accordingly, plaintiffs’ application for appointment of a receiver or for a
preliminary injunction is DENIED without prejudice to renewal before the arbitrator.
VI.

CONCLUSION

Proceedings in this case are hereby STAYED pending arbitration pursuant to the
arbitration clause of the Agreement. It is ORDERED that this action is hereby removed
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BRYAN GRIGSBY ET AL. v. DC 4400, LLC ET AL.

from this Court’s active caseload until further application by the parties or order of this
Court.
Plaintiffs’ application for appointment of a receiver or for a preliminary injunction
is DENIED without prejudice.
IT IS SO ORDERED.
00
Initials of Preparer

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03
CMJ

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