The opinion of the court was delivered by: The Honorable John W. Darrah
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on Defendants' Motions to (1) Vacate
Minute Order Dated 03/26/01 [28-2] (denying Defendants' Motion to Stay as
moot), (2) Set a date for Hearing on Defendants' Motion to Stay
Litigation [28-3], and (3) Stay these Proceedings Pending Appeal [28-4],
as well as Plaintiffs' Motions (1) for Expedited Discovery [20-1], (2) to
Stay Ruling on Motion to Stay [20-2], (3) to Dismiss Arbitration
Proceeding [22-1], and (4) to Stay Pending Discovery [22-2]. For the
reasons stated herein, Defendants' Motions to Vacate the Minute Order
Dated 03/26/01 [28-2] and Motion to Stay the Litigation  are GRANTED.
All remaining Motions [28-3], [28-4], [20-1], [20-2], [22-1], and [22-2]
Plaintiffs and Cellular Wholesalers, Inc. entered into a merger
agreement with Defendant Focus Affiliates, Inc. ("Focus") and Merger Sub
on July 23, 1999. Defendant Michael Hedge ("Hedge") signed the Agreement
in his official capacity as CEO of Focus and Merger Sub.
The Agreement included an arbitration clause that provided as follows:
"in the event of any dispute under the terms of this Agreement, such
dispute shall be resolved by binding arbitration under the rules of the
American Arbitration Association in Los Angeles, California."
On April 24, 2000, Defendant Focus filed a Demand for Arbitration with
the American Arbitration Association, stating claims of fraud and breach
On June 30, 2000, Plaintiffs filed the present lawsuit, asserting
claims of fraud, negligence, and breach of contract. Defendants filed a
Motion to Stay Litigation pending the outcome of the arbitration
proceeding on August 4, 2000 . Plaintiffs filed their own Motion for
Expedited Discovery and to Stay Ruling on Motion to Stay on February 22,
2001 [20-1, 2]. Soon after on March 6, 2001, Plaintiffs filed
Motion to Dismiss Arbitration Proceeding, or in the Alternative, to Stay
Arbitration Pending Discovery [22-1, 2].
Defendants' Motion to Stay Litigation  was denied as moot on March
26, 2001. Defendants, in turn, filed their "Motion to Reconsider and
Vacate Minute Order Dated 03/26/01 and to Set a Date for Hearing on
Defendants' Motion to Stay Litigation or, Alternatively, to Stay these
Proceedings Pending Appeal" [28-2, 3, 4].
Federal law favors arbitration as a means of resolving disputes.
The Federal Arbitration Act ("FAA") provides that a "written provision
in . . . a contract evidencing a transaction involving commerce to settle
by arbitration a controversy thereafter arising out of such contract or
transaction, . . . 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 Supreme Court has recognized that the
FAA embodies abroad federal policy favoring arbitration.
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225-226, 107
S.Ct. 2332, 2336-37 (1987). Section 3 of the FAA requires a court to stay
proceedings if an issue before it is arbitrable under an agreement covered
by the FAA, while Section 4 directs the court to issue an order
compelling arbitration if either party fails, neglects, or refuses to
comply with the arbitration agreement. The FAA further "establishes
that, as a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration, whether the
problem at hand is the construction of the contract itself or an
allegation of waiver, delay, or a like defense to arbitrability."
It is appropriate that these Motions be considered together since they
concern the proper forum for resolution of the litigants' numerous
disputes. Defendants seek an order staying the present case so that
Plaintiffs' claims might be resolved in the ongoing arbitration.
Plaintiffs in turn seek an order staying the arbitration so that all
claims might be considered in federal court.
Plaintiffs argue the claims in their Complaint are not subject to the
arbitration clause of the Agreement and that the arbitration should be
dismissed because: (1) their claims do not arise under the "terms of the
agreement"; (2) Defendant Hedge is not a party to the Agreement in his
individual capacity; (3) and the alleged "successor in interest" to Focus
was not a party to the Agreement. Plaintiffs' ...