Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_08-cv-02902/USCOURTS-cand-3_08-cv-02902-2/pdf.json

Parties Involved:
Bank of America N.A.
Petitioner
Arthur Micheletti
Respondent
Janice Micheletti
Respondent
Micheletti Family Partnership
Respondent

Document Text:

United States District Court

For the Northern District of California

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NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BANK OF AMERICA, N.A.,

Plaintiff,

 v.

MICHELETTI FAMILY PARTNERSHIP, et

al.

Defendants.

 /

No. 08-02902 JSW

ORDER DENYING MOTION TO

DISMISS OR STAY AND

GRANTING MOTION TO

COMPEL ARBITRATION

INTRODUCTION

Now before the Court for consideration are the Motion to Dismiss or Stay Petition to

Compel Arbitration filed by Defendants, the Micheletti Family Partnership, Arthur Micheletti,

and Janice Micheletti (collectively “Micheletti”), and the Petition to Compel Arbitration filed

by Plaintiff Bank of America, N.A. (“BofA”). The Court has considered the parties’ papers,

relevant legal authority, and the record in this case, and it finds that the matter is suitable for

disposition without oral argument. See N.D. Civ. L.R. 7-1(b).) The hearing and initial case

management conference set for October 17, 2008 are VACATED, and the Court HEREBY

DENIES Michelletti’s motion and GRANTS BofA’s motion.

BACKGROUND

BofA’s petition is premised upon an arbitration clause in a ground lease, dated July 18,

1977, which BofA, as tenant, entered into with “Bank of America National Trust and Savings

Association, as Trustee of the Trust created by Arturo Micheletti by Substituted Declaration of

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1 BofA has filed a request for judicial notice in support of its motion to compel,

in which it asks that the Court take judicial notice of Micheletti’s state court complaint,

pleadings relating to the court approval of the 1959 Lease, and the grant deed relating to the

property at issue in this case. BofA’s request is GRANTED. See Fed. R. Evid. 201(b), (d);

Lee v. City of Los Angeles, 250 F.3d 668, 688-90 (9th Cir. 2001).

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Trust dated March 13, 1931,” as landlord (hereinafter the “1977 Lease”). (Petition, Ex. A (1977

Lease at 1).) 

In 1931, defendant Art Michelleti’s father, Arturo Micheletti, created the Arturo

Micheletti Trust (the “Trust”) and named BofA as Trustee. (See Declaration of Adrian J.

Sawyer (“Sawyer Decl.”), Ex. A (Micheletti v. Bank of America, N.A., et al., No. CGC-08-

477590, Complaint (hereinafter “State Court Complaint”) ¶ 11).) The Trust property consisted

of real property in San Francisco and San Mateo counties, including the property that is the

subject of the 1977 Lease. (State Court Complaint ¶¶ 12, 21.) According to Micheletti, the

Trust “nominally terminated” in 1980, and the property that is the subject of the 1977 Lease was

transferred to Micheletti. (See id. ¶¶ 13-18.) BofA alleges that the Lease is substantially

similar to a lease that BofA and the Trust entered into in 1959 (the “1959 Lease”), which

covered only a portion of the trust property at issue. BofA and the Trust sought and obtained

court approval of the terms of the 1959 Lease but apparently did not do so for the 1977 Lease. 

(See State Court Complaint ¶ 32.)1

The 1977 Lease contains an arbitration provision that provides:

Any question, dispute, controversy or misunderstanding arising under any

provision of this lease shall be settled by arbitration. The party asking for

arbitration shall request arbitration through the American Arbitration

Association and the decision of that association shall be binding unto the

parties hereto. The expense of the arbitration shall be borne as the

American Arbitration Association directs.

(1977 Lease at 21.) It is undisputed that Micheletti did not sign the 1977 Lease. It also is

undisputed that the parties have been operating under the terms of the lease, and Micheletti has

been receiving rental payments under the 1977 Lease, since 1981, when the property was

deeded to Micheletti. 

At some point in 2007 disputes arose between Micheletti and BofA in connection with

the termination of the 1977 Lease. The parties attempted to resolve their disputes informally

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but were unsuccessful. According to BofA, it demanded that Micheletti submit the disputes to

arbitration, but Micheletti refused. (Petition ¶ 16; Declaration of James B. Wright (“Wright

Decl.”), ¶¶ 2-5, Ex. A.) On June 11, 2008, BofA filed its Petition to Compel Arbitration in this

Court, but it has not filed a demand with AAA. In its Petition, BofA asserts that the dispute is

governed by the FAA and asserts that diversity jurisdiction exists.

On July 16, 2008, Micheletti filed the state court action, in which he asserts claims

against BofA and Larry P. Johnston, who signed the lease on behalf of BofA as Landlord, for

breach of fiduciary duty, imposition of a constructive trust and accounting, waste, constructive

fraud, negligence, and conversion. Each of the claims in the state court action is premised upon

the allegation that BofA engaged in self dealing when it entered into the 1977 Lease. 

Micheletti, however, does not seek to rescind the 1977 Lease. (See, e.g., State Court Complaint

¶¶ 23-31, 42-76 and Prayer for Relief.) Micheletti also alleges that he did not learn of the

disputed lease terms until 2007, as the lease was about to terminate. (State Court Complaint ¶

26). 

On July 24, 2008, BofA removed the state court action to this Court, and the matter was

related to the instant dispute. (See Micheletti v. Bank of America, N.A., 08-3557-JSW, Docket

Nos. 1, 6.) On September 5, 2008, the Court granted the parties’ stipulation to remand the state

court action to San Francisco Superior Court. (08-3557-JSW, Docket No. 9.) On September

12, 2008, BofA filed its motion to compel arbitration. On the same day, Micheletti filed the

motion to dismiss. 

ANALYSIS

A. Micheletti’s Motion to Dismiss or Stay Is Denied.

Micheletti contends that the Court should dismiss or stay this action in favor of the state

court action pursuant to the Colorado River doctrine or pursuant to its discretion under the

Declaratory Relief Act. Colorado River Water Conservation Dist. v. United States, 424 U.S.

800, 813 (1976). A district court has discretion under the doctrine of abstention to “decline to

exercise or postpone the exercise of its jurisdiction.” Id. at 813. 

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The doctrine of abstention . . . is an extraordinary and narrow exception to the

duty of a District Court to adjudicate a controversy properly before it. 

Abdication of the obligation to decide cases can be justified under this doctrine

only in the exceptional circumstances where the order to the parties to repair to

the State court would clearly serve an important countervailing interest.

Id. (citing County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89 (1959)).

Abstention rests on “considerations of proper constitutional adjudication and regard for

federal-state relations.” Colorado River, 424 U.S. at 817. Under the Colorado River doctrine,

if federal and state courts have concurrent jurisdiction over a matter, the federal court may stay

or dismiss its suit due to the presence of a concurrent state proceeding. Id. at 818. The Ninth

Circuit requires a “substantial similarity” between the state and federal proceedings but has

noted that “exact parallelism” is not required. Nakash v. Marciano, 882 F.2d 1411, 1416 (9th

Cir. 1989). The parties do address the substantial similarity requirement. The Court, however,

concludes that the requisite similarity exists.

Courts weigh several factors when determining whether to stay or dismiss an action

under Colorado River: (1) whether a court has assumed jurisdiction over a res, (2) the

inconvenience of the federal forum, (3) the desirability of avoiding piecemeal litigation, and (4)

the order in which jurisdiction was obtained by the concurrent forums, (5) whether state or

federal law provides the rule of decision on the merits, and (6) whether the state proceeding is

adequate to protect the parties’ rights. Id. at 1415 (citing Colorado River, 424 U.S. at 818;

Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. 460 U.S. 1, 25-26 (1983)). The

Ninth Circuit also considers whether the federal court proceeding is an instance of forum

shopping. See, e.g., Travelers Indemnity Co. v. Madonna, 914 F.2d 1364, 1367-68 (9th Cir.

1990). “These factors are to be applied in a pragmatic and flexible way, as part of a balancing

process rather than a mechanical checklist.” Nakash, 882 F.2d at 1415 (quotations omitted).

Dismissal under the Colorado River doctrine is warranted only under “exceptional”

circumstances, and courts have uniformly acknowledged “the virtually unflagging obligation of

the federal courts to exercise the jurisdiction given them.” Colorado River, 424 U.S. at 817-18

(citations omitted). However, as the Ninth Circuit has explained, “[t]his somewhat overstates

the law because in certain circumstances, a federal court may stay its proceedings in deference

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to pending state proceedings. This doctrine rests on considerations of wise judicial

administration, giving regard to conservation of judicial resources and comprehensive

disposition of litigation.” Nakash, 882 F.2d at 1415 (quotations omitted).

Balancing the relevant factors, the Court concludes that Micheletti has not met his

burden to show abstention is warranted. Neither court has assumed jurisdiction over property,

so the first factor is neutral. Both the state court action and this action are pending in San

Francisco, and Micheletti does not argue that the federal forum is inconvenient. Thus, the

second factor either is neutral or, to the extent it is not neutral, weighs slightly against

abstention. Cf. Puck v. WP Pacific, Inc., 2007 WL 2315952 at *4 (C.D. Cal. Jan. 17, 2007)

(where parties were located in Los Angeles, state court proceeding was pending in Los Angeles,

and federal court proceeding was pending in Orange County, factor was either neutral or

weighed slightly in favor of finding of inconvenience); Hilb, Rogal & Hobbs Co. v. Driver

Alliant Ins. Servs., Inc., 2006 WL 2380667 at *5 (D. Ariz. Aug. 16, 2006) (determining second

factor was neutral where both state and federal court were located in Arizona). 

Micheletti argues that the third factor, the desirability of avoiding piecemeal litigation,

factor weighs in favor of abstention, because both this Court and the state court would be

required to determine if his state claims fall within the scope of the arbitration clause. In light

of the Court’s ruling on the motion to compel, the Court concludes the danger of piecemeal

litigation is not present and weighs against abstention.

The fourth factor looks to the order in which the state and federal courts obtained

jurisdiction. There is no dispute that BofA filed this suit before Micheletti filed the state court

action. Micheletti argues that when BofA filed its petition, there was no justiciable dispute

because BofA had not been aggrieved by a refusal to arbitrate. In its Petition, however, BofA

states that, notwithstanding its request, Micheletti refused to arbitrate the dispute. (Petition ¶

16; see also Wright Decl., ¶¶ 2-5, Ex. A.) Micheletti does not submit any evidence to contradict

this assertion. The Court, therefore, concludes that the Petition was ripe at the time it was filed.

In addition to looking to which suit was filed first, this factor also requires the Court to

determine which suit has progressed further. Here, resolution of BofA’s petition will resolve

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the federal proceedings. See Moses H. Cone, 460 U.S. at 22 (noting that although there had not

been substantial progress in state proceedings, “[i]n the federal suit ... the parties had taken most

of the steps necessary to a resolution of the arbitrability issue”). Although there has not been

substantial progress in the state court action, that is due, in large part, to the fact that BofA

removed the state court action shortly after it was filed. Thus, on the facts of this case, the

Court concludes that this factor slightly weighs against abstention. 

State law will provide the rule of decision on the underlying claims. In addition, this

Court will apply state law, in part, in order to resolve the petition to compel arbitration. Thus,

the fifth factor weighs slightly in favor of abstention. However, the Court concurs that on the

facts of this case, the fact that state law governs does not rise to the level of exceptional

circumstances. See Travelers, 914 F.2d at 1370 (concluding that where case involved “routine

issues of state law-misrepresentation, breach of fiduciary duty, and breach of contract-which the

district court is fully capable of deciding, there are no such ‘rare circumstances’” warranting

abstention under Colorado River). 

With respect to the sixth factor, whether the state court would adequately protect BofA’s

rights, in Travelers the Ninth Circuit noted that this factor involves “the state court’s adequacy

to protect federal rights, not the federal court’s adequacy to protect state rights.” Id. (emphasis

in original). Although BofA now contends that the FAA does not govern its petition to compel,

the Court disagrees. The parties need not have “contemplated substantial interstate activity at

the time they entered into the agreement.” Shepard v. Edward Mackay Enters., 148 Cal. App. 4th

1092, 1097 (2007) (citing Allied Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 277 (1995). 

Rather, all that is required is that the transaction turn out, in fact, to involve interstate

commerce. Allied Bruce Terminx, 513 U.S. at 277. Here, it is undisputed that the 1977 Lease

now involves citizens of different states. The Court concludes, therefore, that the 1977 Lease

evidences a transaction involving interstate commerce. See, e.g., Big Y Foods, Inc. v.

Connecticut Properties Tri-Town Plaza, Inc., 985 F. Supp. 232, 234 (D. Conn. 1998) (dispute

involving successors to a lease entered into in 1966 involved interstate commerce where

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2 It is, however, puzzled by BofA’s decision to abandon its position that the

FAA governs this dispute.

3 Because the Court concludes that BofA’s Petition properly was filed under the

FAA, the Court does not reach Micheletti’s alternative argument that the Court should

exercise its discretion and decline jurisdiction under the Declartory Relief Act.

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landlord and tenant were citizens of different states). The Court concludes that this factor

weighs against abstention. 

Finally, both parties accuse the other of forum shopping. Micheletti argues that BofA’s

Petition was a reactive measure and filed before any dispute existed. Because the Court has

concluded that BofA was aggrieved by Micheletti’s refusal to arbitrate when it filed the

Petition, the Court does not find that argument persuasive.2

 The Court also accords little weight

to BofA’s argument that Micheletti is engaging in forum shopping within the state courts. 

Accordingly, the Court finds this factor to be neutral. 

Balancing all of the factors, the Court concludes that Micheletti has not met his burden

to show that exceptional circumstances required by Colorado River exist in this case. 

Accordingly, the Court denies the motion to dismiss or stay.3

B. BofA’s Petition to Compel Arbitration is Granted.

1. Legal Standards.

Pursuant to the Federal Arbitration Act (“FAA”), arbitration agreements “shall be valid,

irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. Once the Court has determined that an arbitration

agreement involves a transaction involving interstate commerce, thereby falling under the FAA,

the Court’s only role is to determine whether a valid arbitration agreement exists and whether

the scope of the parties’ dispute falls within that agreement. 9 U.S.C. § 4; Chiron Corp. v.

Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). “Under § 4 of the FAA, a

district court must issue an order compelling arbitration is the following two-pronged test is

satisfied: (1) a valid agreement to arbitrate exists; and (2) that agreement encompasses the

dispute at issue.” United Computer Systems v. AT&T Corp., 298 F.3d 756, 766 (9th Cir. 2002). 

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The FAA represents the “liberal federal policy favoring arbitration agreements” and

“any doubts concerning the scope of arbitrable issues should be resolved in favor of

arbitration.” Moses H. Cone, 460 U.S. at 24-25. Under the FAA, “once [the Court] is satisfied

that an agreement for arbitration has been made and has not been honored,” and the dispute falls

within the scope of that agreement, the Court must order arbitration. Prima Paint Corp. v.

Flood & Conklin Mfg. Co., 388 U.S. 395, 400 (1967). That the Court must order arbitration is

true “even where the result would be the possibly inefficient maintenance of separate

proceedings in different forums.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217

(1985).

Notwithstanding the liberal policy favoring arbitration, by entering into an arbitration

agreement, two parties are entering into a contract. Volt Information Sciences, Inc. v. Board of

Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989) (noting that arbitration

“is a matter of consent, not coercion”). Thus, as with any contract, an arbitration agreement is

“subject to all defenses to enforcement that apply to contracts generally.” Ingle v. Circuit City

Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003.) Although the Court can initially determine

whether a valid agreement exists, disputes over the meaning of specific terms are matters for the

arbitrator to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002); Prima

Paint, 388 U.S. at 403-404 (holding that “a federal court may consider only issues relating to

the making and performance of the agreement to arbitrate”).

While the Federal Arbitration Act contains the general presumption that arbitrability

should be decided by the court, both state and federal cases hold that the issue may be referred

to the arbitrator if there is clear and unmistakable evidence from the arbitration agreement that

the parties intended that the question of arbitrability should be decided by the arbitrator. First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995); see also Dream Theater Inc.

v. Dream Theater, 124 Cal. App. 4th 547, 550-57 (2004). Moreover, the cases hold that where

the parties’ agreement to arbitrate includes an agreement to follow a particular set of arbitration

rules – such as the AAA Rules – that provide for the arbitrator to decide questions of

arbitrability, the presumption that courts decide arbitrability falls away, and the issue is decided

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by the arbitrator. See, e.g., Poponin v. Virtual Pro, Inc., 2006 WL 2691418, *9 (N.D. Cal. Sept.

20, 2006); Anderson v. Pitney Bowes, Inc., 2005 WL 1048700, *2-4 (N.D. Cal. May 4, 2005);

Dream Theater, 124 Cal. App. 4th at 557.

2. Analysis.

As a threshold matter, the Court must resolve the issue of whether the issue of

arbitrability is one for the Court or for the arbitrator. Although it is undisputed that Micheletti

did not sign the 1977 Lease, he does not dispute its existence or the existence of the arbitration

clause contained therein. The language of the arbitration clause is clear and unambiguous. It

provides that arbitration will be conducted by AAA. In 1977, AAA rules provided that “[t]he

parties shall be deemed to have made these rules a part of their arbitration agreement whenever

they have provided for arbitration by the American Arbitration Association or under its rules. 

These rules and any amendment thereof shall apply in the form obtaining at the time the

arbitration is initiated.” (Declaration of Erin Welsh, Ex. 1 (emphasis added).) Current AAA

rules provide that the “arbitrator shall have 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.” (Id., Ex. 2.) By explicitly stating that arbitration would be conducted by AAA, the

parties thereby incorporated AAA rules, which provide that the arbitrator can determine his or

her own jurisdiction. 

The Court does not find Micheletti’s argument that he could not have clearly and

umistakably agreed to allow the arbitrator to decide arbitrability because he did not sign the

lease to be particularly persuasive, given that he has benefitted, at least to some degree, from its

terms over the past twenty years. Furthermore, Micheletti has not submitted a declaration that

states that he was not aware of the arbitration provision and his state court complaint is not

verified. Accordingly, the Court concludes that the parties did manifest a clear and

unmistakable intent to submit the issue of arbitrability to the arbitrator. See, e.g., Poponin,

2006 WL 2691418 at *9 (where the arbitration agreement incorporated ICC Rules that provided

for the arbitrator to decide arbitrability, the presumption that courts decide arbitrability falls

away); Anderson, 2005 WL 1048700 at *24 (court conducts facial and limited review of the

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contract to determine only whether the parties have in fact clearly and unmistakenly agreed to

commit the question of arbitrability to the arbitrator); see also Dream Theater, 124 Cal. App. 4th

at 553.

Accordingly, BofA’s motion to compel arbitration is GRANTED.

CONCLUSION

For the foregoing reasons, Micheletti’s motion to dismiss or stay is DENIED, and

BofA’s motion to compel arbitration is GRANTED. BofA asks the Court to stay the federal

proceedings. However, the Court’s resolution of the motion to compel resolves the Petition to

Compel. Further, there is no federal action pending involving the disputes at issue. Thus, there

is nothing for the Court to stay. Rather, BofA has obtained all relief it sought in this Court, and

it is entitled to arbitrate its dispute with Micheletti. The Court notes, however, that nothing in

this Order should be construed as placing the burden to file a demand with the AAA on

Micheletti, and the Court expects BofA to file a demand forthwith.

A separate judgment shall issue, and the Clerk is directed to close the file. 

IT IS SO ORDERED.

Dated: October 14, 2008 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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