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GOLDBERG v. FOCUS AFFILIATES

June 7, 2001

RONALD GOLDBERG, PHILIP LEAVITT, SHERWIN GEITNER, AND CARY MAIMON, PLAINTIFFS,
v.
FOCUS AFFILIATES, INC., DBA FOCUSWIRELESS.COM, A DELAWARE CORPORATION, F.K.A. INTELLICELL CORP., AND MICHAEL HEDGE, DEFENDANTS.



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 [8] are GRANTED. All remaining Motions [28-3], [28-4], [20-1], [20-2], [22-1], and [22-2] are DENIED.

BACKGROUND

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 of contract.

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 [8]. 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 their Motion to Dismiss Arbitration Proceeding, or in the Alternative, to Stay Arbitration Pending Discovery [22-1, 2].

Defendants' Motion to Stay Litigation [8] 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].

LEGAL STANDARD

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."

DISCUSSION

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' ...


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