Tentative Ruling: Peter Cohen vs Kenneth Cohen et al
Case Number
25CV06433
Case Type
Hearing Date / Time
Mon, 05/04/2026 - 10:00
Nature of Proceedings
CMC; Motion: Compel Arbitration
Tentative Ruling
Peter Cohen v. Kenneth Cohen, et al.
Case No. 25CV06433
Hearing Date: May 4, 2026
HEARING: Motion to Compel Arbitration and Stay Proceedings
ATTORNEYS: For Plaintiff Peter Cohen, derivatively on behalf of nominal defendants Trillium Enterprises, Inc., and Sequoia Properties, LLC: R. Chris Kroes, Jake Stoddard, McCarthy & Kroes
For Defendant Kenneth Cohen: Michael S. Fauver, Victoria C. Diffenderfer, Fauver Large Archbald & Spray LLP
TENTATIVE RULING:
The motion of defendant to compel arbitration and stay proceedings is granted, in part as to the first, second, third, fourth, and fifth causes of action asserted in plaintiff’s complaint on behalf of Sequoia Properties, LLC, only. Except as herein granted, the motion is otherwise denied. Further, the court will order a stay of these proceedings in accordance with this ruling. Defendant shall submit for the court’s review and signature, a proposed order that conforms to the court’s ruling herein.
Background:
As alleged in plaintiff Peter Cohen’s complaint:
In 1987, plaintiff and his brother, Kenneth Cohen (K Cohen), co-founded Trillium Enterprises, Inc., (Trillium), which is a construction company. (Complaint, ¶ 6.) As their company grew and changed, the brothers created two separate business entitles through which they conducted all their business. (Ibid.)
The operating agreement of Sequoia Properties, LLC, (Sequoia) provides that plaintiff and K Cohen are the managers of Sequoia; that the percentage interests of plaintiff and K Cohen are each 50 percent; that the purpose of the company is to own, lease, develop, manage and operate real property in the County of Santa Barbara; that losses and gains are allocated by the percentage ownership in the company; and that there is a buy-out option by Sequoia. (Complaint, ¶ 7.)
Trillium maintained the construction aspects of the parties’ joint endeavors, with the brothers to share all expenses and revenues equally, to have an “equal say” in how the Entities were conducted, and owing duties and fiduciary obligations to each other and the Entities to act reasonably and not misuse corporate assets for their own benefit. (Complaint, ¶¶ 8-10.)
K Cohen is a director and the Chief Executive Officer of Trillium and Sequoia (collectively, the Entities). (Complaint, ¶ 2.) Within the last two years, K Cohen has engaged in self-dealing and misuse of corporate assets for his own benefit and to the detriment of the company and plaintiff. (Complaint, ¶ 11.) Sequoia was supposed to generate growing free cash that would supplement and ultimately replace Trillium’s income, however K Cohen’s philosophy and actions on spending and misuse of business assets as his own hindered the business and caused substantial losses. (Complaint, ¶ 12.) K Cohen has utilized three of the rental properties owned by Sequoia as personal vacation homes for his own benefit and to the detriment of the Entities and other owners and shareholders; has misused company funds for his own benefit; and has engaged in acts of gross mis-management of the Entities. (Complaint, ¶ 13.) Plaintiff believes that K Cohen is acting against the interests of the Entities and for himself by squandering corporate assets; mismanagement; failing to address accounting problems; indiscretions in regard to the Entities’ executive compensation; and failing to comply with corporate formalities. (Complaint, ¶ 14.)
On October 14, 2025, plaintiff filed their verified shareholder derivative complaint against K Cohen and the Entities, alleging seven causes of action: (1) breach of fiduciary duty by a director and officer; (2) waste of corporate assets; (3) unjust enrichment; (4) gross mismanagement; (5) for an accounting; (6) for the appointment of a receiver; (7) for the sale and judicial dissolution pursuant to Corporations Code sections 17707.03 and 1800.
On December 16, 2025, K Cohen filed a motion for an order compelling arbitration of all claims and issues alleged in the complaint; staying this action pending completion of arbitration; and awarding K Cohen their costs incurred in bringing the present motion.
Plaintiff opposes the motion.
Analysis:
“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)
“Private arbitration is a matter of agreement between the parties and is governed by contract law.” (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313.) “Under both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” (Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683.) “[C]ourts must first apply state law principles in determining whether the parties entered into an agreement to arbitrate.” (Garcia v. Stoneledge Furniture LLC (2024) 102 Cal.App.5th 41, 51.) “Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 409-410, 413 (Rosenthal).)
“The arbitration proponent must first recite verbatim, or provide a copy of, the alleged agreement. [Citations.] A movant can bear this initial burden ‘by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.’ [Citation.] At this step, a movant need not ‘follow the normal procedures of document authentication’ and need only ‘allege the existence of an agreement and support the allegation as provided in [California Rules of Court,] rule [3.1330].’ [Citation.]” (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755, original italics.)
The motion is supported by a declaration of K Cohen’s counsel, Michael S. Fauver, to which are attached copies of an “Operating Agreement for Sequoia Properties LLC, a California Limited Liability Company” (the Operating Agreement), and a “Trillium Enterprises, Inc., Shareholder Purchase Agreement” (the Shareholder Agreement). (Fauver Dec., ¶¶ 2-3 & exhibits A-B.) In the motion, K Cohen asserts that the governing provisions which require arbitration of the present dispute appear in paragraph 11.2.1 11.2.2 of the Operating Agreement, and 12.6 of the Shareholder Agreement. (Motion at pp. 4-5 [section II(A)-(B)] & 6 [section IV(A)].)
The governing provisions of the Operating Agreement cited by K Cohen state: “If a controversy shall exist between the parties hereto, their successors or assigns, arising under or out of this [Operating] Agreement, the parties hereto agree to bargain in good faith towards a resolution of such dispute.” (Fauver Dec., exhibit A at p. 41, ¶ 11.2.1.) The Operating Agreement further states: “If the matter is not resolved within thirty (30) days through bargaining, the parties agree to submit the dispute to arbitration under the appropriate rules of the American Arbitration Association (‘AAA”). All such arbitration proceedings shall be administered by the AAA. In all cases submitted to AAA, the parties agree to share equally the administrative fee as well as the arbitrator’s fee, if any, unless otherwise assessed by the arbitrator. The parties agree that the decision of the arbitrator shall be final and binding as to each of them, and that the arbitrator’s award may be enforced in any court having jurisdiction thereof by the filing of a petition to enforce such award. The provisions of this Agreement pertaining to attorneys’ fees and governing law shall apply to any arbitration under this subsection.” (Id. at ¶ 11.2.2.)
The governing provision of the Shareholder Agreement states, in relevant part: “If controversy shall exist between the parties hereto, their successors or assigns, arising under or out of this [Shareholder] Agreement which they cannot resolve among themselves, any party to the controversy shall have the right to submit the same to arbitration in accordance with commercial rules of the American Arbitration Association.” (Fauver Dec., exhibit B at p. 19, ¶ 12.6.)
K Cohen asserts in their motion that the present controversy arises under or out of the Operating Agreement because that agreement governs the ownership and internal management of Sequoia by, among other things, defining the exercise of managerial authority and how that authority must be performed, and by prescribing Sequoia’s accounting obligations and a manager’s ability to rely on others to carry out those obligations.
K Cohen also asserts that the controversy at issue arises under or out of the Shareholder Agreement because that agreement defines the relationship of the parties as shareholders, governs who may hold or transfer shares and under what conditions, prescribes purchase options and notice requirements, and regulates encumbrances and involuntary transfers.
As a preliminary matter, the court notes that the motion is not verified by K Cohen. Though the declaration of attorney Fauver includes no evidence to sustain a finding as to the authenticity of the Operating Agreement or the Shareholder Agreement, and plaintiff’s ostensible signature on those documents, in their opposition to the motion, plaintiff does not challenge the authenticity of those documents or plaintiff’s signature on those documents, and appears to concede that plaintiff executed the Operating Agreement and Shareholder Agreement. (Evid. Code, § 1400; Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 [the party opposing arbitration “bears the burden of producing evidence to challenge the authenticity of the agreement”]; Ramirez v. Golden Queen Mining Co., LLC (2024) 102 Cal.App.5th 821, 832 [discussing manner by which party meets burden of challenging the existence of arbitration agreement]; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218 [noting that, “although no evidence was ever introduced to verify the signature’s authenticity, it was never challenged.”]).
Though plaintiff does not dispute that the Operating Agreement and Shareholder Agreement each include an agreement to arbitrate any controversy that arises out of or under those agreements, plaintiff asserts that those agreements are narrow in their scope, and encompass disputes regarding the formation or performance of those agreements only and not the derivative claims alleged in these proceedings which plaintiff contends do not depend on interpreting, administering, or enforcing those agreements.
Plaintiff and K Cohen do not assert, with supporting argument, that either the Operating Agreement or the Shareholder Agreement authorize or require the arbitrator to determine questions of arbitrability. (United Teachers of Los Angeles v. Los Angeles Unified School Dist. (2012) 54 Cal.4th 504, 524–525 [if “the agreement does not authorize the arbitrator to determine arbitrability ... [t]he arbitrability issue ... is for the court.”].)
“In ruling on a petition to compel arbitration, the trial court may consider evidence on factual issues relating to the threshold issue of arbitrability, i.e., whether, under the facts before the court, the contract excludes the dispute from its arbitration clause or includes the issue within that clause.” (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) “To determine whether a contractual arbitration clause requires arbitration of a particular controversy, the controversy is first identified and the issue is whether that controversy is within the scope of the contractual arbitration clause.” (In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1106.) “The burden is on ... the party opposing arbitration, to show that the arbitration clause cannot be interpreted to cover the claims in the ... complaint.” (EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321 (EFund).)
Relevant here, “[s]hareholders may bring two types of actions, ‘a direct action filed by the shareholder individually (or on behalf of a class of shareholders to which he or she belongs) for injury to his or her interest as a shareholder,’ or a ‘derivative action filed on behalf of the corporation for injury to the corporation for which it has failed or refused to sue.’ [Citation.] ‘The two actions are mutually exclusive: i.e., the right of action and recovery belongs either to the shareholders (direct action) or to the corporation (derivative action).’ [Citation.] When the claim is derivative, the ‘shareholder is merely a nominal plaintiff.... Even though the corporation is joined as a nominal defendant ..., it is the real party in interest to which any recovery usually belongs.’ [Citation.]” (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 311–312, original italics.)
Plaintiff does not dispute, and appears to concede, that plaintiff filed this action on behalf of the Entities. (See also Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108 [discussing when “an action is deemed derivative”].) For these and all further reasons discussed above, the record reflects that the Entities are the real parties in interest under the circumstances present here.
The first, second, third, fourth, and fifth causes of action for, respectively, breach of fiduciary duty, waste of corporate assets, unjust enrichment, gross mismanagement, and for an accounting arise from an alleged failure by K Cohen to implement or enforce effective internal controls and procedures with respect to financial issues for the Entities, to exercise oversight and to monitor the Entities and their compliance with laws, to follow corporate formalities, to prudently manage the assets and business of the Entities consistent with their operations; from the purported withholding of information by K Cohen; from purported self-dealing and mismanagement of the Entities by K Cohen; and from the purportedly improper distribution of funds received by the Entities to K Cohen. (Complaint, ¶¶ 21, 35-36, 41, 47.)
The available evidence and information, including the allegations of the complaint, show expressly and by inference, that K Cohen is a member and ostensibly a manager of Sequoia. (See, e.g., Fauver Dec., exhibit A at pp 35 & 40 [identifying K Cohen as a manger of Sequoia].)
“Although members of an LLC may generally participate in the management and control of the business [citation]..., this ability ultimately depends on how management is vested within the parties’ operating agreement and articles of incorporation. [¶] Relations among members and the LLC are governed by its articles of incorporation and operating agreement.” (Swart Enterprises, Inc. v. Franchise Tax Bd. (2017) 7 Cal.App.5th 497, 510.)
Section 17701.10 of the California Revised Uniform Limited Liability Company Act (the RULLCA), codified as Corporations Code section 17701.01 et seq., provides that the operating agreement “governs all of the” matters set forth in subdivision (a) of that section. (Corp. Code, § 17701.10, subd. (a).) Those matters include “[r]elations among the members as members and between the members and the limited liability company[]”, “[t]he rights and duties under this title of a person in the capacity of manager[]”, and “[t]he activities of the limited liability company and the conduct of those activities. (Corp. Code, § 17701.10, subd. (a)(1), (2), (3).)
In addition, though an operating agreement may not eliminate the duty of loyalty prescribed in Corporations Code section 17704.09, it “may do any of the following:
“(A) Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.
“(B) Specify the number or percentage of members that may authorize or ratify, after full disclosure to all members of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.” (Corp. Code, § 17701.10, subd. (c)(14)(A)-(B).)
Corporations Code section 17701.10 also provides that “[t]o the extent the operating agreement does not otherwise provide for a matter described in subdivision (a), [the RULLCA] governs the matter.” (Corp. Code, § 17701.10, subd. (b).)
The RULLCA also provides that an operating agreement may not vary the applicable law or the power of the court under Corporations Code sections 17701.06 and 17702.04; “eliminate the duty of loyalty, the duty of care, or any other fiduciary duty[]”, or “eliminate the contractual obligation of good faith and fair dealing under subdivision (d) of Section 17704.09, but the operating agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable as determined at the time the standards are prescribed.” (Corp. Code, § 17701.10, subd. (c)(2)-(5).)
Provisions appearing in the Operating Agreement at issue here show shows that plaintiff and K Cohen had formed Sequoia at the time those parties executed that agreement. (Fauver Dec., exhibit A at section 2.1.) Among other things, the Operating Agreement states that the rights and liabilities of plaintiff and K Cohen “shall be determined pursuant to [the Beverly-Killea Limited Liability Company Act] and this Agreement”; states that the Operating Agreement, to the extent permitted by law, controls; sets forth the manner in which Sequoia shall be managed, and the powers of its managers, and the manner in which net profits and losses will be allocated; and sets forth procedures for the keeping of books and records and accounting matters. (Fauver Dec., exhibit A at sections 2.1, 5.1.1-5.8.3, 6.1.1-6.9 & 8.1-8.5.)
The court has considered the general purpose of and matters governed by the Operating Agreement as provided under the RULLCA; the express terms of that agreement and its purpose in governing the relations between plaintiff, K Cohen, and Sequoia; the rights and duties of the managers of Sequoia which include K Cohen; the ostensible activities of Sequoia; and the derivative nature of the claims asserted by plaintiff on behalf of Sequoia in that regard, as further detailed and discussed above. Under the circumstances present here, K Cohen has met their burden to show that, to the extent the first, second, third, fourth, and fifth causes of action asserted in the complaint are brought by plaintiff on behalf of Sequoia, those claims arise under or out of the Operating Agreement for all reasons discussed above.
In addition, plaintiff fails to explain why the arbitration clause contained in the Operating Agreement cannot be interpreted to cover the first, second, third, fourth, or fifth causes of action. (EFund, supra, 150 Cal.App.4th at p. 1321.) Moreover, “any doubt as to whether plaintiff’s claims come within the arbitration clause must be resolved in favor of arbitration.” (Id. at pp. 1320–1321.) For these and all further reasons discussed above, the court finds that, as to the dispute or controversy alleged in or giving rise to the first, second, third, fourth, and fifth causes of action asserted in plaintiff’s complaint on behalf of Sequoia, K Cohen has met their burden to show that the parties agreed to submit that dispute or controversy to arbitration. (Graphic Arts Internat. Union v. Oakland Nat. Engraving Co. (1986) 185 Cal.App.3d 775, 780.)
Contract defenses such as unconscionability may be applied to invalidate an agreement to arbitrate. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125.) “If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation] —that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal, supra, 14 Cal.4th at p. 413.)
Apart from the matters discussed above, plaintiff does not assert any defense to enforcement of the arbitration provision contained in the Operating Agreement as to the causes of action brought on behalf of Sequoia and described above. For these and all further reasons discussed above, plaintiff has failed to meet their burden to produce and prove facts necessary to establish a defense to enforcement of that provision.
As to the first, second, third, fourth, and fifth causes of action asserted on behalf of Trillium, in addition to the contentions described above, K Cohen asserts that the derivative nature of these proceedings means that plaintiff asserts Trillium’s rights under the Shareholder Agreement.
The express purpose of the Shareholder Agreement is to “protect[] [Trillium] and [plaintiff and K Cohen] in the event that [plaintiff or K Cohen] dies or seeks to dispose of his/her shares.” (Fauver Dec., exhibit B at p. 1 & pdf p. 77 [exhibit A to agreement].) The motion fails to show, with reasoned argument, why any of the claims or causes of action asserted in plaintiff’s complaint on behalf of Trillium arise from the death of either plaintiff or K Cohen, or that plaintiff seeks to dispose of their shares in Trillium in these proceedings. For these and all further reasons discussed above, K Cohen has failed to meet their burden to show that, as to the first, second, third, fourth, and fifth causes of action brought by plaintiff on behalf of Trillium, there exists an arbitrable controversy.
For all reasons discussed above, the court will grant the motion, in part as to the first, second, third, fourth, and fifth causes of action asserted on behalf of Sequoia only, and will order the parties to submit that controversy to arbitration in accordance with the governing provisions of the Operating Agreement. The court will deny the motion as to the first, second, third, fourth, and fifth causes of action asserted on behalf of Trillium.
In regard to the sixth and seventh causes of action for, respectively, the appointment of a receiver and judicial dissolution pursuant to Corporations Code sections 17707.03 and 1800, K Cohen appears to concede that those causes of action are not subject to arbitration. (See also Corp. Code, § 17707.03, subd. (a) [“a court of competent jurisdiction may decree the dissolution of a limited liability company[]”]; Go v. Pacific Health Services, Inc. (2009) 179 Cal.App.4th 522, 532 [“an action for dissolution of a corporation is itself a special proceeding.”]; Marsch v. Williams (1994) 23 Cal.App.4th 238, 245–246 & fns. 8-9 [“the power to appoint receivers is unique and cannot be extended to arbitrators in the absence of legislative action.”].) Instead, the motion argues that the Operating Agreement includes an express waiver of any claims for the appointment of a receiver and judicial dissolution. Under the circumstances present here it is unnecessary for the court at this time to resolve that issue.
Further, the court will order these proceedings stayed pending the completion of arbitration. (Code Civ. Proc., § 1281.4.) Nothing herein shall be construed to prohibit or limit the parties from stipulating to expand the scope of the arbitration as ordered herein.
The court will order K Cohen to submit a proposed order that conforms to this ruling, for the court’s review and signature.