A California Superior Court Judge in San Diego just issued a ruling denying a motion to compel arbitration of a lawsuit seeking to dissolve an LLC. The LLC operating agreement says that all actions arising from or related to the operating agreement have to be resolved through binding arbitration. And California Supreme Court decisions in the past decade have enforced those arbitration clauses more and more strictly.
But in this case, Judge Wohlfeil reasoned:
Corporations Code section 17701.10(c) provides that an operating agreement for a limited liability company “shall not do any of the following: …
¶ …(7) Vary the power of a court to decree dissolution in the circumstances specified in subdivision (a) of Section 17707.03….” The main action seeks to dissolve the LLC pursuant to section 17707.03. An agreement compelling arbitration of a dissolution action would take this “power” away from the Court and instead vest it with a private arbitrator in violation of the referenced code section. As a result, the arbitration agreement within the subject operating agreement cannot, as a matter of law, compel arbitration of the dissolution action and no waiver has occurred.
The order doesn’t cite any caselaw for this conclusion so I’m not sure if this is an established rule or just Judge Wohlfeil’s personal take on the statute. It makes sense, but it makes me wonder what other types of actions might be relieved from the bounds of an arbitration clause on the basis of statutes like this.
The case is Chappellet VS 4614 Hawley Boulevard LLC, No. 37-2021-00015925-CU-MC-CTL (San Diego Sup. Ct., Aug. 25, 2021).