The Ritz-Carlton Management Company, LLC v. Association of Apartment Owners of Kapalua Bay Condominium
Filing
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ORDER GRANTING PETITIONER'S PETITION TO COMPEL ARBITRATION 1 . Signed by JUDGE LESLIE E. KOBAYASHI on 3/20/2013. [Order follows hearing held 2/25/2013. Minutes: 17 ] (afc)CERTIFICATE OF SERV ICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
THE RITZ-CARLTON MANAGEMENT
COMPANY, LLC,
)
)
)
)
Petitioner,
)
vs.
)
)
ASSOCIATION OF APARTMENT
)
)
OWNERS OF KAPALUA BAY
CONDOMINIUM,
)
)
)
Respondent.
_____________________________ )
CIVIL NO. 13-00055 LEK-KSC
ORDER GRANTING PETITIONER’S
PETITION TO COMPEL ARBITRATION
Before the Court is Petitioner Ritz-Carlton Management
Company, LLC’s (“RCMC”) Petition to Compel Arbitration
(“Petition”), filed on January 30, 2013.
Respondent Association
of Apartment Owners of Kapalua Bay Condominium (the
“Association”) filed its memorandum in opposition to the Petition
on February 14, 2013.
[Dkt. no. 14.]
hearing on February 25, 2013.
This matter came on for
Appearing on behalf of Petitioner
was Lex Smith, Esq., and appearing on behalf of Respondent was
Peter A. Horovitz, Esq., Thomas Benedict, Esq., and Patrick D.
Collins, Esq.
After careful consideration of the Petition,
supporting and opposing memoranda, and the arguments of counsel,
the Petition is HEREBY GRANTED for the reasons set forth below.
BACKGROUND
On May 3, 2006, RCMC1 and the Association executed a
Condominium Association Operating Agreement (“Operating
Agreement.”).
[Petition, Exh. B (Operating Agreement).]
The
Operating Agreement provides that the Operating Company, RCMC,
may incur expenses on behalf of the Association for certain
operational costs, which are then reimbursable by the
Association.
[Id. at §§ 13, 32.]
Pursuant to the Operating
Agreement, the Association is obligated to fund its operating
account in an amount adequate to satisfy the ongoing operating
costs for the project.
[Id.]
In addition, the Association is
required to operate in accordance with “The Ritz-Carlton Brand
Standards.”
[Id. at § 31.]
Under the Operating Agreement, the
Association agrees to pay RCMC an operating fee for its services.
[Id. § 41.]
The Operating Agreement contains an arbitration
clause that states the following:
A dispute under this Agreement shall be governed
exclusively by the laws of the State of Hawaii and
shall be controlled and decided by arbitration.
The parties agree that the arbitration shall be
held in Hawaii and subject to the American
Arbitration’s rules then in effect. The decision
1
The Ritz-Carlton Development Company, Inc. (“RCDC”),
predecessor to RCMC, originally entered into the agreement with
the Association. Pursuant to an Assignment and Assumption
Agreement dated September 14, 2011, RCMC replaced RCDC as the
Operating Company. [See Petition, Exh. C (Assignment and
Assumption Agreement).]
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shall be binding and non-appealable by either
party. Unless the arbitrator determines
otherwise, the party losing the arbitration shall
be responsible for and pay all the reasonable
costs, expenses, and attorney’s fees incurred by
the other party.
[Id. § 17.]
On July 2, 2012, RCMC sent the Association a letter
demanding that the Association sufficiently fund the
Association’s Operating Account by July 9, 2012.
D (Notice and Demand Letter).]
[Petition, Exh.
The Association failed to do so.
[Petition at 5.]
On or about September 26, 2012, RCMC served a Demand
for Arbitration (“Demand”) upon the Association pursuant to the
American Arbitration Association’s (“AAA”) Commercial Arbitration
Rules.
[Petition, Exh. A (Demand).]
In its Demand, RCMC alleged
that the Association materially breached and defaulted under the
Operating Agreement by, among other things, (1) failing to
reimburse RCMC for operational expenses incurred; (2) failing to
maintain sufficient funds in the operating account to meet
ongoing operational costs; (3) failing to maintain sufficient
operating funds to allow the project to be operated in accordance
with “The Ritz-Carlton Brand Standards”; and (4) failing to pay
RCMC its operating fee.
[Id.]
In response to the Demand, AAA appointed Jerry Hiatt,
Esq. as an arbitrator.
On January 14, 2013, Mr. Hiatt held a
Preliminary Hearing Conference via telephone, and subsequently
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ordered that if the Association wished to seek a stay of
arbitration, it should do so by filing a motion to stay
arbitration in the Circuit Court of the Second Circuit, State of
Hawai`i, in the previously filed case styled Krishna Narayan, et
al. v. Marriott International, Inc., et al., Civil No. 12-10586(3) (the “Narayan Litigation”).
(Arbitrator’s Order).]
[Mem. in Opp., Exh. 8
The arbitrator’s order noted that the
parties’ submissions to the Circuit Court “are without prejudice
to their rights to . . . seek appropriate remedies before AAA and
courts of competent jurisdiction.”
[Id.]
On February 13, 2013,
the Narayan court granted the Association’s Motion to Stay
Arbitration.
[Id., Decl. Of Peter Al. Horovitz.]
In the Narayan Litigation, on June 7, 2012, a number of
the whole unit fee owners of the project filed suit in Second
Circuit Court of the State of Hawai`i.
(Narayan Complaint).]
[Mem. in Opp., Exh. 2
RCMC and the Association are both named
defendants in the Narayan Litigation.
The Narayan Complaint
alleges, among other things, mismanagement of the project by
RCMC, RCDC, the Association, and others.
The First Amended
Complaint in the case includes claims that the Operating
Agreement is unconscionable and that RCMC acted improperly
thereunder.
[Mem. in Opp., Exh. 3 (Amended Narayan Complaint).]
On June 22, 2012, the Narayan court granted the Narayan
Plaintiffs’ motion for a temporary restraining order, essentially
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freezing the Association’s funds while the Narayan Plaintiffs
pursue their claims to claw back (the “TRO”).
Exh. 4 (Order Granting TRO).]
[Mem. in Opp.,
The TRO remains largely in place
and, as is relevant to these proceedings, prohibits the
Association from withdrawing funds to pay any fees and/or
expenses claimed or for the benefit of RCMC absent further order
of court.
[Id.]
RCMC and others moved to compel arbitration of the
Narayan Plaintiffs’ claims on July 5, 2012.
Their motion was
denied and RCMC is currently appealing that denial to the
Intermediate Court of Appeals for the State of Hawai`i.
[Id.,
Exh. 6 (the Interlocutory Appeal).]
In the instant Petition, RCMC seeks an order from this
Court, pursuant to Section 4 of the Federal Arbitration Act,
compelling the Association to proceed to arbitration on any and
all disputes arising under the Operating Agreement.
DISCUSSION
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et
seq., which applies to arbitration agreements in contracts
involving transactions in interstate commerce, provides that
written arbitration agreements “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or equity for
the revocation of any contract.”
9 U.S.C. § 2.
The FAA provides
that “any doubts concerning the scope of arbitrable issues should
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be resolved in favor of arbitration, whether the problem at hand
is the construction of the contract language itself or an
allegation of waiver, delay, or a like defense to arbitrability.”
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24–25 (1983); see also Lowden v. T–Mobile USA, Inc., 512 F.3d
1213, 1217 (9th Cir. 2008) (“Congress enacted the FAA more than
eighty years ago to advance the federal policy favoring
arbitration agreements.”).
“The standard for demonstrating
arbitrability is not high.
The Supreme Court has held that “the
FAA leaves no place for the exercise of discretion by a district
court, but instead mandates that district courts direct the
parties to proceed to arbitration on issues as to which an
arbitration agreement has been signed.”
Simula, Inc. v. Autoliv,
Inc., 175 F.3d 716, 719 (9th Cir. 1999) (citing Dean Witter
Reynolds v. Byrd, 470 U.S. 213, 218 (1985)).
In determining whether to compel a party to arbitrate,
a district court may not review the merits of the dispute;
rather, “the district court’s role is limited to determining
whether a valid arbitration agreement exists and, if so, whether
the agreement encompasses the dispute at issue.
If the answer is
yes to both questions, the court must enforce the agreement.”
Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010,
1012 (9th Cir. 2004) (citing Chiron Corp. v. Ortho Diagnostic
Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)).
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In construing
the terms of an arbitration agreement, the district court
“appl[ies] general state-law principles of contract
interpretation, while giving due regard to the federal policy in
favor of arbitration by resolving ambiguities as to the scope of
arbitration in favor of arbitration.”
Wagner v. Stratton
Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996) (citation
omitted).
Here, relying on the arbitration clause in the
Operating Agreement, RCMC seeks an order from this Court
compelling the Association to proceed to arbitration on any and
all disputes arising under the Operating Agreement.
The
Association does not dispute that it is a party to the Operating
Agreement, or that the Operating Agreement contains an
arbitration provision.
[Mem. in Opp. at 2.]
The Operating
Agreement states that “[a] dispute under this Agreement shall be
governed exclusively by the laws of the State of Hawaii and shall
be controlled and decided by arbitration.”
§ 17.]
[Petition, Exh. B at
The “dispute” at issue here clearly arises under the
Operating Agreement: RCMC alleges in its Demand that the
Association materially breached and defaulted under the Operating
Agreement by, among other things, failing to reimburse RCMC for
operational expenses incurred, failing to maintain sufficient
funds in the operating account, and failing to pay RCMC its
operating fee, all actions the Association is required to take
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under the Operating Agreement.
[Petition, Exh. A (Demand).]
As
such, the arbitration agreement clearly “encompasses the dispute
at issue.”
See Lifescan, 363 F.3d at 1012.
The Association argues that the Court should
nevertheless deny RCMC’s Petition because the ongoing Narayan
Litigation involves related issues and parties, including claims
by the Narayan Plaintiffs potentially undermining the validity of
the Operating Agreement.
While the Court finds the Association’s
arguments compelling, they must ultimately fail.
The Association
makes no argument that the Association is not a party to the
Operating Agreement, that the arbitration provision is invalid or
otherwise unenforceable, or that the arbitration provision is
inapplicable to the instant dispute.
grant RCMC’s Petition.
As such, this Court must
See Dean Witter Reynolds, 470 U.S. at 218
(“[t]he [FAA] leaves no place for the exercise of discretion by a
district court, but instead mandates that district courts shall
direct the parties to proceed to arbitration on issues as to
which an arbitration agreement has been signed.”) (emphasis in
original); Lifescan, 363 F.3d at 1012 (“[T]he district court’s
role is limited to determining whether a valid arbitration
agreement exists and, if so, whether the agreement encompasses
the dispute at issue.
If the answer is yes to both questions,
the court must enforce the agreement.”).
HEREBY GRANTS RCMC’s Petition.
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The Court, therefore,
With respect to RCMC’s request in the Petition for
attorneys’ fees and costs, the Court, without ruling on the
availability or amount of fees, directs RCMC to comply with Local
Rule 54.3 in a separate motion for attorneys’ fees and costs if
it wishes to pursue its fee request.
CONCLUSION
On the basis of the foregoing, RCMC’s Petition to
Compel Arbitration, filed January 30, 2013, is HEREBY GRANTED.
As no issues remain for adjudication by this Court, the Clerk’s
Office is directed to close this case.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, March 20, 2013.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
THE RITZ-CARLTON MANAGEMENT COMPANY, LLC V. AOAO KAPALUA BAY
CONDOMINIUM; CIVIL NO. 13-00055 LEK-KSC; ORDER GRANTING
PETITIONER’S PETITION TO COMPEL ARBITRATION
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