1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Apex Holdings LLC, No. CV-24-03035-PHX-MTL
10 Plaintiff, ORDER
11 v.
12 FairBridge Hotels International Incorporated, et al., 13 Defendants. 14 15 Plaintiff Apex Holdings LLC brings this breach of contract action against 16 Defendants FairBridge Hotels International Inc., FairBridge Hospitality Systems Inc., 17 Medisavant Inc., Sumeet Kals, Deepinder Singh, and Sumi Kohli (collectively, 18 “Defendants”), who allegedly defaulted on a loan with a principal sum of over one million 19 dollars. (Doc. 1.) Before the Court is Defendants’ Motion to Compel Arbitration and Stay 20 Proceedings. (Doc. 18.) The Motion is fully briefed. (Docs. 19, 21.) For the following 21 reasons, the Court will grant the motion. 22 I. 23 Section 2 of the Federal Arbitration Act (“FAA”) states that an agreement to 24 arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at 25 law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The United States 26 Supreme Court has described this provision of the FAA as both a “liberal federal policy 27 favoring arbitration,” and the “fundamental principle that arbitration is a matter of 28 contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citations 1 omitted). 2 When assessing a motion to compel arbitration pursuant to the FAA, the Court’s 3 role is limited to determining “(1) whether a valid agreement to arbitrate exists and, if it 4 does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho 5 Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (citing 9 U.S.C. § 4). The FAA 6 “leaves no place for the exercise of discretion by a district court, but instead mandates that 7 district courts shall direct the parties to proceed to arbitration on issues as to which an 8 arbitration agreement has been signed.” Id. (citation omitted). 9 II. 10 Defendants’ motion seeks to compel arbitration pursuant to Section 10.1 of the 11 parties’ Convertible Note Agreement (“CNA”), which provides: 12 This Agreement shall be governed by and construed in accordance with laws of the State of Arizona and all the Parties 13 hereto irrevocably submit to the arbitration board of the State of Arizona as regards any claim, dispute or matter arising out 14 of or relating to this Agreement or any of the documents to be executed pursuant to it. 15 16 (Doc. 20-4 at 7.) 17 Plaintiff does not dispute the validity of the arbitration clause, but rather argues the 18 provision does not encompass the dispute at issue. (Doc. 19.) Plaintiff’s opposition is, in 19 essence, twofold. First, Plaintiff argues that Defendants’ motion should be denied because 20 it erroneously relies on an outdated draft of the contract and not the final executed 21 agreement. (Doc. 19 at 1-3.) Defendants acknowledge the parties cite to different versions 22 of the contract documents but consent to the Court assessing the May 8, 2022 version 23 proposed as the final contract by Plaintiff. (Doc. 21 at 1.) Therefore, Plaintiff’s first basis 24 for denial is moot. 25 Second, Plaintiff argues the contracts at issue in this action—the Promissory Note 26 and Guaranty—do not contain an arbitration clause, and the arbitration clause in the CNA 27 is not otherwise incorporated into the Note and Guaranty agreements. (Doc. 19 at 4-6.) 28 Defendants contend the Note and Guaranty were executed pursuant to and as portions of 1 the overarching CNA, and therefore, the arbitration agreement covers any dispute arising 2 out of or relating to all contracts. (Doc. 21 at 2-3.) 3 The Court has reviewed the Note, Guaranty, and CNA, and agrees with Defendants. 4 The express terms of the arbitration clause mandate arbitration for “any claim, dispute or 5 matter arising out of or relating to” the CNA “or any of the documents to be executed 6 pursuant to it.” (Doc. 20-4 at 7 (emphasis added).) By their own terms, the Note and 7 Guaranty agreements were executed pursuant to the CNA. For example, the Note plainly 8 states, “This Note is executed and delivered pursuant to the terms of that certain 9 Convertible Note Agreement . . . .” (Doc. 20-1 at 2 (emphasis added).) And the Guaranty 10 provides in its recitals, “the Lender has agreed to make a loan to the Borrower 11 Entities . . . pursuant to that certain Convertible Note Agreement . . . .” (Doc. 20-2 at 2 12 (emphasis added).) Moreover, the Note and Guaranty are attached as Exhibits A and B to 13 the CNA. (See Doc. 20-4 at 2-3.) 14 Plaintiff relies on a memorandum decision from the Arizona Court of Appeals to 15 argue that merely referencing the CNA in the recitals of the Note or Guaranty does not, by 16 itself, extend all terms of the CNA to the other agreements. (Doc. 19 at 6 (referencing 17 Siegel v. Simons, No 1 CA-CV 22-0170, 2022 WL 17685015 (App. Ariz. Dec. 15, 2022).) 18 In Siegel, the parties disputed whether the arbitration clause in a 2017 operation agreement 19 was rendered inoperative by a termination agreement executed nearly three years later. 20 2022 WL 17685015, at *1-2. Ruling in the affirmative, the court determined the plaintiff 21 was under no obligation to arbitrate because the 2020 termination agreement superseded 22 the terms of the 2017 operation agreement—including the arbitration provision. Id. at *2. 23 The defendant seeking to compel arbitration also argued the documents were sufficiently 24 related because the 2020 agreement referenced the 2017 agreement in its recitals, thereby 25 extending the obligation to arbitrate to the later agreement. Id. at *3. The court rejected this 26 argument, stating “When the recitals are broader than a contract’s operative clauses, the 27 recitals cannot be used to extend or broaden the restrictions contained in the body of the 28 agreement.” Id. (quoting Fugate v. Town of Payson, 164 Ariz. 209, 211 (1990)). 1 Unlike Siegel, the contracts at issue here are not mere ships passing in the night. 2 First, the CNA, Note, and Guaranty were executed contemporaneously—not three years 3 apart as was the case in Siegel. Therefore, the terms of the Note and Guaranty cannot be 4 said to have superseded the terms of the CNA. Second, the CNA, Note and Guaranty do 5 not fleetingly reference each other in the recitals, but rather repeatedly cite to, 6 cross-reference, and reaffirm the terms of the other agreements. For example, the Note 7 explains that a failure to comply with any term “contained in the [Convertible Note] 8 Agreement” constitutes a default. (Doc. 20-1 at 3.) And the Guaranty provides that “Each 9 Guarantor irrevocably and unconditionally fully guarantees . . . the payment and 10 performance . . . of all amounts due and owing under the Note and the Agreement.” (Doc. 11 20-2 at 2 (emphasis added).) As another illustration, the CNA states, “Lender has agreed 12 to make a loan to the Borrowers on the terms and conditions set forth herein and in the 13 Convertible Note executed concurrently herewith.” (Doc. 20-4 at 2 (emphasis added).) 14 In a multi-contract situation such as the one presented here, Arizona courts apply a 15 four-factor test to assess whether the agreements are “sufficiently related to justify 16 compelling arbitration of all claims arising under the agreements.” Sun Valley Ranch 308 17 Ltd. P’ship ex rel. Englewood Props., Inc. v. Robson, 231 Ariz. 287, 292 (App. 2012) 18 (citation omitted).
Free access — add to your briefcase to read the full text and ask questions with AI
1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Apex Holdings LLC, No. CV-24-03035-PHX-MTL
10 Plaintiff, ORDER
11 v.
12 FairBridge Hotels International Incorporated, et al., 13 Defendants. 14 15 Plaintiff Apex Holdings LLC brings this breach of contract action against 16 Defendants FairBridge Hotels International Inc., FairBridge Hospitality Systems Inc., 17 Medisavant Inc., Sumeet Kals, Deepinder Singh, and Sumi Kohli (collectively, 18 “Defendants”), who allegedly defaulted on a loan with a principal sum of over one million 19 dollars. (Doc. 1.) Before the Court is Defendants’ Motion to Compel Arbitration and Stay 20 Proceedings. (Doc. 18.) The Motion is fully briefed. (Docs. 19, 21.) For the following 21 reasons, the Court will grant the motion. 22 I. 23 Section 2 of the Federal Arbitration Act (“FAA”) states that an agreement to 24 arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at 25 law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The United States 26 Supreme Court has described this provision of the FAA as both a “liberal federal policy 27 favoring arbitration,” and the “fundamental principle that arbitration is a matter of 28 contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (citations 1 omitted). 2 When assessing a motion to compel arbitration pursuant to the FAA, the Court’s 3 role is limited to determining “(1) whether a valid agreement to arbitrate exists and, if it 4 does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho 5 Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (citing 9 U.S.C. § 4). The FAA 6 “leaves no place for the exercise of discretion by a district court, but instead mandates that 7 district courts shall direct the parties to proceed to arbitration on issues as to which an 8 arbitration agreement has been signed.” Id. (citation omitted). 9 II. 10 Defendants’ motion seeks to compel arbitration pursuant to Section 10.1 of the 11 parties’ Convertible Note Agreement (“CNA”), which provides: 12 This Agreement shall be governed by and construed in accordance with laws of the State of Arizona and all the Parties 13 hereto irrevocably submit to the arbitration board of the State of Arizona as regards any claim, dispute or matter arising out 14 of or relating to this Agreement or any of the documents to be executed pursuant to it. 15 16 (Doc. 20-4 at 7.) 17 Plaintiff does not dispute the validity of the arbitration clause, but rather argues the 18 provision does not encompass the dispute at issue. (Doc. 19.) Plaintiff’s opposition is, in 19 essence, twofold. First, Plaintiff argues that Defendants’ motion should be denied because 20 it erroneously relies on an outdated draft of the contract and not the final executed 21 agreement. (Doc. 19 at 1-3.) Defendants acknowledge the parties cite to different versions 22 of the contract documents but consent to the Court assessing the May 8, 2022 version 23 proposed as the final contract by Plaintiff. (Doc. 21 at 1.) Therefore, Plaintiff’s first basis 24 for denial is moot. 25 Second, Plaintiff argues the contracts at issue in this action—the Promissory Note 26 and Guaranty—do not contain an arbitration clause, and the arbitration clause in the CNA 27 is not otherwise incorporated into the Note and Guaranty agreements. (Doc. 19 at 4-6.) 28 Defendants contend the Note and Guaranty were executed pursuant to and as portions of 1 the overarching CNA, and therefore, the arbitration agreement covers any dispute arising 2 out of or relating to all contracts. (Doc. 21 at 2-3.) 3 The Court has reviewed the Note, Guaranty, and CNA, and agrees with Defendants. 4 The express terms of the arbitration clause mandate arbitration for “any claim, dispute or 5 matter arising out of or relating to” the CNA “or any of the documents to be executed 6 pursuant to it.” (Doc. 20-4 at 7 (emphasis added).) By their own terms, the Note and 7 Guaranty agreements were executed pursuant to the CNA. For example, the Note plainly 8 states, “This Note is executed and delivered pursuant to the terms of that certain 9 Convertible Note Agreement . . . .” (Doc. 20-1 at 2 (emphasis added).) And the Guaranty 10 provides in its recitals, “the Lender has agreed to make a loan to the Borrower 11 Entities . . . pursuant to that certain Convertible Note Agreement . . . .” (Doc. 20-2 at 2 12 (emphasis added).) Moreover, the Note and Guaranty are attached as Exhibits A and B to 13 the CNA. (See Doc. 20-4 at 2-3.) 14 Plaintiff relies on a memorandum decision from the Arizona Court of Appeals to 15 argue that merely referencing the CNA in the recitals of the Note or Guaranty does not, by 16 itself, extend all terms of the CNA to the other agreements. (Doc. 19 at 6 (referencing 17 Siegel v. Simons, No 1 CA-CV 22-0170, 2022 WL 17685015 (App. Ariz. Dec. 15, 2022).) 18 In Siegel, the parties disputed whether the arbitration clause in a 2017 operation agreement 19 was rendered inoperative by a termination agreement executed nearly three years later. 20 2022 WL 17685015, at *1-2. Ruling in the affirmative, the court determined the plaintiff 21 was under no obligation to arbitrate because the 2020 termination agreement superseded 22 the terms of the 2017 operation agreement—including the arbitration provision. Id. at *2. 23 The defendant seeking to compel arbitration also argued the documents were sufficiently 24 related because the 2020 agreement referenced the 2017 agreement in its recitals, thereby 25 extending the obligation to arbitrate to the later agreement. Id. at *3. The court rejected this 26 argument, stating “When the recitals are broader than a contract’s operative clauses, the 27 recitals cannot be used to extend or broaden the restrictions contained in the body of the 28 agreement.” Id. (quoting Fugate v. Town of Payson, 164 Ariz. 209, 211 (1990)). 1 Unlike Siegel, the contracts at issue here are not mere ships passing in the night. 2 First, the CNA, Note, and Guaranty were executed contemporaneously—not three years 3 apart as was the case in Siegel. Therefore, the terms of the Note and Guaranty cannot be 4 said to have superseded the terms of the CNA. Second, the CNA, Note and Guaranty do 5 not fleetingly reference each other in the recitals, but rather repeatedly cite to, 6 cross-reference, and reaffirm the terms of the other agreements. For example, the Note 7 explains that a failure to comply with any term “contained in the [Convertible Note] 8 Agreement” constitutes a default. (Doc. 20-1 at 3.) And the Guaranty provides that “Each 9 Guarantor irrevocably and unconditionally fully guarantees . . . the payment and 10 performance . . . of all amounts due and owing under the Note and the Agreement.” (Doc. 11 20-2 at 2 (emphasis added).) As another illustration, the CNA states, “Lender has agreed 12 to make a loan to the Borrowers on the terms and conditions set forth herein and in the 13 Convertible Note executed concurrently herewith.” (Doc. 20-4 at 2 (emphasis added).) 14 In a multi-contract situation such as the one presented here, Arizona courts apply a 15 four-factor test to assess whether the agreements are “sufficiently related to justify 16 compelling arbitration of all claims arising under the agreements.” Sun Valley Ranch 308 17 Ltd. P’ship ex rel. Englewood Props., Inc. v. Robson, 231 Ariz. 287, 292 (App. 2012) 18 (citation omitted). These factors evaluate: “(1) whether the agreements incorporate or 19 reference each other; (2) whether the agreements are dependent on each other or relate to 20 the same subject matter; (3) whether the arbitration clause specifically excludes certain 21 claims; (4) whether the agreements are executed closely in time and by the same parties.” 22 Id. (citation omitted). 23 The CNA, Note, and Guaranty are replete with internal cross-references, exhibiting 24 the parties’ intent to incorporate the other agreements in full. Further, the contracts are 25 dependent on each other and relate to the same subject matter—e.g., the over one-million- 26 dollar loan from Plaintiff to Defendants. The third factor also weighs in favor of arbitration 27 because the arbitration provision in the CNA does not exclude any claims from its reach. 28 Indeed, it is drafted broadly to encompass “any claim, dispute or matter arising out of or relating to” the CNA “or any of the documents to be executed pursuant to it.” (Doc. 20-4 at 7.) And lastly, the agreements were executed contemporaneously, which also supports a finding that any dispute relating to the Note and Guaranty falls under the arbitration provision in the CNA. 5 Plaintiff argues that conflicting provisions between the Note, Guaranty, and CNA || precludes this Court from finding that the CNA’s terms govern disputes arising out of the || Note and Guaranty. (Doc. 19 at 6-8.) To the extent there is any inconsistency between the 8 || agreements to cause doubt as to whether the three documents are part of one integrated contract, the Court resolves such doubt in favor of arbitration. Sun Valley, 231 Ariz. at 292 || (“[D]Joubts about the arbitrability of disputes should be resolved in favor of arbitration.”). 11 Because the agreement is valid and encompasses the dispute at issue, the Court will || grant Defendants’ motion and stay this action pending arbitration. See Smith □□□ Spizzirri, 13 || 601 U.S. 472, 473-74 (2024) (“Section 3 of the FAA specifies that, when a dispute is subject to arbitration, the court ‘shall on application of one of the parties stay the trial of 15} the action until [the] arbitration’ has concluded.”’) (quoting 9 U.S.C. § 3). 16 Tl. 17 IT IS THEREFORE ORDERED that Defendants’ Motion to Compel Arbitration 18 || and Stay Proceedings (Doc. 18) is GRANTED, and the parties shall engage in private 19 || arbitration as contemplated by the arbitration agreement. 20 IT IS FURTHER ORDERED that this matter is STAYED pending arbitration. 21 IT IS FINALLY ORDERED that the parties must file a joint status report on the 22 || last business day of each month concerning the status of arbitration. The parties must also 23 || file a joint report within seven (7) calendar days of the conclusion of arbitration. The joint 24 || report must advise the Court whether (a) the stay can be lifted and (b) this case can be 25 || dismissed. 26 Dated this 14th day of April, 2025. 27 . . 38 Mi Charl T. Hbhurdle Michael T. Liburdi United States District Judge _5-