Arnaud v. Machat, B190065 (Cal. App. 7/11/2007)

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DELMAR ARNAUD, Plaintiff and Respondent, v. STEVEN ELLIOT MACHAT, Defendant and Appellant.

B190065

Court of Appeals of California, Second Appellate District, Division Five

July 11, 2007

NOT TO BE PUBLISHED

Appeal from a judgment of the Superior Court of Los Angeles County, No. BC310589, Andrea K. Richey, Judge. Affirmed in part; dismissed in part.

Steven Elliot Machat in pro. per., for Defendant and Appellant.

Bret D. Lewis for Plaintiff and Respondent.

TURNER, P. J.

I. INTRODUCTION

This is an appeal of two superior court orders arising from a legal malpractice, fraud, conversion and fiduciary breach action brought by plaintiff, DelMar Arnaud, against his former attorneys. Defendants are Steven Machat, Jonathan D. Freund, Thomas Brackey II, and the law firm, Freund & Brackey LLP. Mr. Machat is the only defendant who is a party to this appeal. Mr. Machat seeks reversal of an order setting aside a prior order compelling arbitration. Mr. Machat also appeals from an order finding that certain debts were not dischargeable through bankruptcy. We affirm the order setting aside the arbitration order. We dismiss the appeal from the March 1, 2006 order finding that certain debts were not dischargeable.

II. BACKGROUND

A. The Complaint and Arbitration Order

Mr. Arnaud filed the present malpractice based lawsuit on February 13, 2004. Mr. Arnaud alleged that he retained defendants to represent him in a royalty dispute in 2001 against various defendants in the case of Delmar Arnaud v. Death Row Records, LLC (Super. Ct. L.A. County, 2001, No, BC255215). On December 6, 2002, a default judgment was entered in Mr. Arnaud's favor. The December 6, 2002 judgment in favor of Mr. Arnaud was in the sum of $25,497,847.71 and against: Death Row Records LLC; Suge Music, an entity of unknown designation; Marion H. Knight who is also known as Suge Knight; Death Row Records, Inc.; and THA Row, a corporation. The December 6, 2002 judgment also declared that Mr. Arnaud possessed ownership rights in 22 separate works and required royalty payments be made to him.

Defendants then hired an attorney to file an action in New York City to enforce Mr. Arnaud's December 6, 2002 judgment. Defendants represented to Mr. Arnaud that an attorney, Kenneth A. Elan, had been engaged in New York. According to defendants, Mr. Elam had been retained to act on behalf of both Mr. Arnaud and Organized Crime Family, Inc. to enforce the December 6, 2002 judgment. On January 8, 2003, Mr. Elan filed a lawsuit in the Supreme Court of the State of New York, County of New York Index No. 03/100272 to recover assets belonging to "Death Row Records" in the possession of Koch Entertainment LLC. Defendants misrepresented that Mr. Elam had been retained to protect Mr. Arnaud's interest. Rather, Mr. Elan was only representing the interests of Organized Crime Family, Inc. in the New York enforcement action. The New York enforcement action led to a settlement. As part of the settlement of the New York enforcement action, defendants advised Mr. Arnaud to sign a release agreement. Defendants failed to advise Mr. Arnaud that the release would, in fact, transfer all his rights in the judgment to Organized Crime Family, Inc. Under the terms of the settlement, Koch Entertainment agreed to pay and is continuing to pay substantial sums to Organized Crime Family, Inc. and the attorneys but no moneys are to be paid to Mr. Arnaud. Defendants have refused to disclose the specific amounts of payments to Mr. Arnaud.

It was further alleged that, unbeknownst to Mr. Arnaud, defendants were simultaneously representing an organization named Organized Crime Family Inc. in a federal action in United States District Court for the Central District of California entitled Afeni Shakur v. Delmar Arnaud, case No. 01-07400. In this action, the representative of the estate of Tupac Shakur sued Mr. Arnaud and Organized Crime Family Inc. The federal lawsuit involved plaintiff's interest in certain of Mr. Shakur's master recordings. Disputes over these master recordings were also the subject matter of the lawsuit which resulted in entry of the December 6, 2002 judgment.

On June 9, 2004, Mr. Machat filed a petition to compel arbitration of the claims in this action. The petition was joined by the other defendants. On August 30, 2004, the trial court entered an order which: granted the petition to compel arbitration; submitted the matter to arbitration with the American Arbitration Association; and stayed the action pending completion of the arbitration. On October 3, 2005, the arbitration panel issued an interim ruling concerning the failure to post the required arbitration fees: "In view of the fact that after repeated notice the parties have not made the required deposits, this matter is suspended. The panel and AAA shall retain jurisdiction. The Panel will not read or consider any submissions, including but not limited to any motions to dismiss, until all of the required deposits have been paid in full."

B. The Order Setting Aside the Arbitration Order

On October 14, 2005, the trial court issued an order to show cause as to why Mr. Machat should not be held in contempt for willfully disobeying a court order to arbitrate the matter by refusing to pay his portion of arbitration fees. On November 8, 2005, Mr. Machat, who was now representing himself, filed a response to the order to show cause. Mr. Machat's declaration states, "Although not personally involved, I understand Arnaud's activities caused significant delays in the prosecution of this matter in arbitration." Mr. Machat further declared that he could not afford to pay the $10,000 arbitration fees because he had petitioned for bankruptcy protection on December 22, 2003 under chapter 7 of title 11 of the United States Code. Attached to Mr. Machat's declaration as exhibit B was a discharge order pursuant to title 11 of the United States Code section 727 from the United States Bankruptcy Court for the Central District of California dated March 1, 2004. Mr. Machat stated that he was uncertain of the effect of the discharge order in this case. But Mr. Machat declared he presumed the claims in this case were discharged by the bankruptcy court's order. The discharge order makes no reference of the current dispute. Further, Mr. Arnaud submitted a copy of Mr. Machat's schedule of debts for which he sought discharge. Mr. Machat's debt schedule did not list Mr. Arnaud as a creditor.

On November 10, 2005, the trial court began a hearing on the contempt order to show cause. The matter was continued to November 23, 2005, for further briefing on the issues of whether the trial court had authority to either sever Mr. Machat from the arbitration or to immediately set the case for trial. Mr. Arnaud argued that the trial court lacked jurisdiction to issue an order on August 30, 2004 compelling Mr. Machat to arbitrate. According to Mr. Arnaud, Mr. Machat had filed a bankruptcy petition on November 17, 2003. Mr. Arnaud further argued Mr. Machat had acted improperly in filing the petition to compel arbitration without notifying the trial court or any other party of the existence of the bankruptcy action. Mr. Arnaud claimed he was prejudiced by Mr. Machat's dilatory conduct because the arbitration had caused a delay in the proceedings. Mr. Arnaud could not obtain a default judgment in the arbitration proceeding. At the November 23, 2005 hearing, Mr. Arnaud's counsel argued the trial court did not have jurisdiction to order the case to be arbitrated because Mr. Machat had filed the bankruptcy petition. The following then transpired: THE COURT: . . . So you're telling me that you didn't think I had jurisdiction to order the matter to arbitration. [¶] MR. LEWIS: That's right." The trial court then explained that both sides agreed that it had no jurisdiction to order the dispute be arbitrated.

The minute order from November 23, 2005, provides in part, "The Court orders the order made as to Machat to arbitrate hereby vacated based on counsel for [Mr. Arnaud's] representation that the court had no jurisdiction to order Machat to arbitrate." The trial court then ordered Mr. Arnaud's counsel to provide the court with a statement regarding the status of the bankruptcy proceeding by January 10, 2005. On December 15, 2005, the trial court entered a signed order vacating the prior order compelling arbitration. That December 15, 2005 written order states in part, "The order compelling Machat to arbitration is void due to the filing of a personal bankruptcy by Machat prior to the date of the Court's order to compel arbitration. . . ." On March 23, 2006, Mr. Machat filed a notice of appeal from the November 23, 2005 order.

C. The Bankruptcy Dischargeability Order

On January 10, 2005, Mr. Arnaud filed a motion requesting a determination that the claims in the complaint were not dischargeable. Mr. Arnaud provided the court with documents from Mr. Machat's bankruptcy case which shows a discharge order dated March 1, 2004, and the case was a no-asset bankruptcy. Mr. Arnaud denied receiving notice of the bankruptcy action until November 2005. This was when Mr. Machat disclosed the existence of the bankruptcy proceeding.

Mr. Arnaud argued the trial court has concurrent jurisdiction over non-dischargeability actions. Because Mr. Arnaud was not listed as a creditor in the bankruptcy schedule (11 U.S.C. § 523(a)(3)), he contended that the discharge order was inapplicable. Mr. Arnaud further argued that because the claims were not scheduled (11 U.S.C. § 523(a)(3)), the complaint's allegations for fraud, fiduciary breach, and conversions were within the exceptions to discharge as set forth in title 11 United States Code section 523(a)(2), (4), and (6).

Mr. Machat did not file written opposition to the motion requesting a determination that the claims were not dischargeable. Moreover, Mr. Machat did not appear at the March 1, 2006 hearing. The trial court granted the...