Edler v. Robson

Filed 10/26/06 Edler v. Robson CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Sheila B. Fell, Judge. Reversed and remanded with directions.

Goldstein & Goldstein, Charles H. Goldstein and Jonathan A. Goldstein, for Defendant and Appellant.

Brin & Associates, Benjamin A. Brin and Diana Kotler, for Plaintiffs and Respondents.

David Robson appeals from the trial court’s denial of his petition to compel arbitration of the dispute in the instant case. Although enforcement of arbitration agreements is favored, respondents Don and Joanne Edler contend that denial of the arbitration petition was appropriate in this case, for three reasons. First, they argue that no enforceable arbitration agreement was entered into, as the purported agreement was contained in a document not signed by any party. Second, they argue that several of the claims asserted do not fall within the scope of those agreements. Third, the Edlers assert Robson waived any right to compel arbitration by participating in proceedings before the trial court. We find none of these contentions persuasive.

The written agreement by which the parties entered into their joint business does specify that all disputes “arising from or in relation to” it “shall be subject to mandatory and binding arbitration . . . .” That provision is quite broad, and covers all the causes of action alleged by the Edlers in this case. And while details of the arbitration procedure are set forth in a separate (unsigned) document attached as an exhibit to the main agreement, that basic provision -- standing alone -- is sufficient to confer a binding arbitration right. If the attached arbitration provisions could not, for some reason, be considered part of the parties’ agreement, the details of the arbitration would be determined in accordance with statutory procedures.

Additionally, Robson’s participation in trial court proceedings consists entirely of efforts to oppose the injunctive relief sought by the Edlers. He sought no independent relief on his own behalf, conducted no discovery, and promptly asserted his right to arbitrate the Edlers’ claims. There is simply no evidence to support the conclusion he waived his right to enforce that arbitration agreement. Consequently, the court’s order denying his petition to compel arbitration is reversed.

* * *

The parties entered into a written contract (the share agreement) in August of 2004. The share agreement provided that both Robson and Sabrina Robson, each of whom owned 50 percent of the shares in a corporation known as “Hair Free Laser Skin Clinic Corporation III” (the clinic), would sell some of those shares to the Edlers. The agreement stated that upon execution of its terms, the Robsons would each own 28 percent of the clinic’s shares, and the Edlers would each own 22 percent.

The share agreement also specified that “[a]ll disputes arising from or in relation to this Agreement, shall be subject to mandatory and binding Arbitration as more fully discussed in the Arbitration Agreement attached hereto as Exhibit A.” A six-page document, identified as “Exhibit A: Agreement to Arbitrate“ is attached to the share agreement, but despite its inclusion of separate signature lines, it is not separately signed.

At the same time the parties entered into the share agreement, Don Edler also entered into a separate employment agreement with the clinic, specifying he would, in essence, run the day-to day operations of the clinic’s business, for which he was to be paid the salary of $2,800 per month.

The employment agreement also contains a provision specifying that Don Edler and the clinic “agree to mutually resolve any disputes arising from this Agreement and/or the employment relationship created by this Agreement, regardless of any other provisions of law through final and binding arbitration. . . . As more fully explained in the provisions of this contract to Arbitrate that is incorporated herein as Exhibit A, both parties to this Agreement are entitled to select a neutral arbitrator, have adequate discovery, have a written decision produced by the arbitrator that will permit a limited form of judicial review, and employer will assume the fee for the arbitrator, while each party shall bear its own attorneys fees, witness fees, and other costs.”

As with the share agreement, the employment agreement’s Exhibit A is comprised of six pages of arbitration terms; it likewise contains its own signature lines, which are not separately executed.

The business relationship did not proceed smoothly, and the Edlers filed their complaint in superior court on May 12, 2005. They alleged, in what was labeled “facts common to all causes of action,” that they and Robson had entered into an agreement to operate the hair removal clinic. The Edlers had never operated a business before, and Robson “steered them to an attorney to handle the paperwork.” Although the “Edlers relied on the attorney to create a business entity which effectuated the agreement between them and Robson, whereby [they] would be owner operators and able to buy out Robson at any time,” the “paperwork that the attorney created purported to make [them] mere minority shareholders and employees.”

The Edlers each devoted substantial time and financial resources to the clinic business. However, after it had had been operating for approximately six months, Robson allegedly demanded control of all money earned. The Edlers then learned from third parties that Robson “was unscrupulous and not to trust him.” They were also told his “standard operational procedure” was to “insinuate himself into control over the business cash and to embezzle the cash for himself,” the cash belonging to the clinic.

As a consequence, the parties commenced negotiations to dissolve their business association. However, before that could be accomplished, Robson allegedly “broke into the [clinic], changed the locks, . . . and excluded the [Edlers] from the [clinic.]” Robson also allegedly “cancelled the use of existing bank accounts, opened new bank accounts, re-routed merchant credit card processing, and set about trying to conduct the business of the [clinic.]”

Based upon those facts, the Edlers alleged 10 causes of action, seeking both damages and injunctive relief. Among other things, the Edlers sought a declaration regarding the rights of each party “with respect to control of the business operations of the [clinic], the amounts of money owed between them arising from the payments previously made to one another and to third parties on behalf of the business.” They also sought an accounting of the business profits, an order restoring the premises to them, and a dissolution and partition of the jointly owned business.

On the same day the complaint was filed, the Edlers also filed an ex parte application for a temporary restraining order (TRO). The immediate relief they sought was, in essence, an order compelling Robson to restore their access to the business premises. Robson filed a written opposition to the application. The court granted the requested TRO on that same date, giving the Edlers the right to temporary mutual possession of the clinic, and setting a hearing on a preliminary injunction for May 31, 2005.

On May 16, 2005, Robson filed an ex parte application seeking to modify the TRO, claiming that new information altered the circumstances under which the TRO had been granted. Robson then filed opposition to the requested restraining order, as well as a motion to disqualify the assigned judge pursuant to Code of Civil Procedure section 170.6.

After the case was reassigned to a new judge, and on June 1, 2005, Robson again filed his own application for a TRO, and again sought, in essence, to modify or overturn the TRO already issued for the benefit of the Edlers. The second judge did not grant the requested ex parte relief, but set Robson’s petition for a hearing, and ordered the Edlers to show cause why it should not grant the preliminary injunction Robson sought.

Two days later, on June 3, 2005, the Edlers filed a motion for reconsideration of the order disqualifying the first judge assigned to the case. That issue was set for hearing on June 21, 2005. Robson opposed the reconsideration motion.

On June 10, 2005, less than a month after the case was filed, Robson filed his motion to compel arbitration. Two days after that, the Edlers filed an ex parte application for reconsideration of the peremptory challenge order, with the ex parte hearing to take place on June 13, 2005. The reconsideration motion was apparently unsuccessful, and the case remained with the second judge.

Both sides filed additional briefs and evidence in support of their positions on the requested preliminary injunctions. In their opposition to the preliminary injunction sought by Robson, the Edlers contended his motion was nothing but a “thinly disguised” attempt to seek reconsideration of the first judge’s decision to grant their TRO.

On July 11, 2005, eight days before Robson’s petition to compel arbitration was scheduled to be heard, he agreed to take the petition off calendar, to allow the Edlers time to file a first amended complaint adding additional causes of action. The first amended complaint added causes of action alleging that (1) if the transaction by which the Robsons sold the Edlers their interest in the clinic amounted to a corporate organization or a sale of stock (which the Edlers deny), it violated Federal securities laws and the California Corporations Code; (2) even assuming an employment agreement existed between the parties (which the Edlers deny), that agreement was wrongfully terminated by Robson; and (3) if the Edlers were mere employees of the clinic (which they deny), Robson is liable for violations of the Labor Code.

Two weeks after the first amended complaint was filed, the Edlers filed an additional ex parte application for a TRO -- this time seeking an order compelling Robson to authorize the clinic’s bank to release funds for payment of bills incurred by or on behalf of the clinic.

On August 12, 2005, Edler again filed a petition to compel arbitration. The hearing was set for October 18, 2005. Ten days after that second petition was filed, the Edlers once again filed an application for a TRO, seeking the same relief as was sought in their second TRO application. The hearing on that application was set for October 11, 2005.Robson again filed opposition to the Edlers’ requested injunctive relief, and the Edlers filed an opposition to Robson’s petition to compel arbitration.

On October 18, 2005, the court heard argument on the petition to compel arbitration. It indicated to the parties a tentative conclusion that Robson had waived his right to arbitrate, through his participation in the litigation. As the court explained to Robson, “you both availed yourself of the court’s services. You both brought motions.”

At the conclusion of the hearing, the court took the matter under submission. On November 4, 2005, the court issued an order denying the arbitration petition. On November 9, 2005, Robson filed an ex parte application for a stay of the trial court proceedings, pending appeal of the court’s order. Although the trial court denied the stay, this court granted his petition for writ of mandate ordered the trial court to stay all proceedings pending final resolution of this appeal.

I

As we have previously explained in Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1230, “the initial burden [of proving the existence of an agreement to arbitrate] is on the party petitioning to compel arbitration. ‘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,] 413; see Engalla v. Permanente Medical Group (1997) 15 Cal.4th 951, 972.) Once the petitioner has met that burden, the burden shifts to the party opposing arbitration, to ‘produc[e] evidence of, and prov[e] by a preponderance of the evidence, any fact necessary to the defense.’ (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413.)”

In this case, Robson’s petition to compel arbitration was supported by copies of both the share agreement and Don Edler’s employment agreement. Robson contends that the arbitration provision contained in the share agreement was itself broad enough to encompass all of the claims asserted by the Edlers. The Edlers, for their part, argue that the share agreement actually contains no enforceable arbitration provision, as the Exhibit A attached thereto was never executed by the parties. Thus, the Edlers suggest that Robson has failed to satisfy his initial burden of establishing the existence of any right to arbitrate.

We conclude that despite the parties’ failure to separately sign Exhibit A to the share agreement -- which certainly would have made things clearer for everyone -- the language in the main part of the share agreement is nonetheless sufficient to confer the basic right to binding arbitration. The share agreement itself states that any disputes “arising from or in relation to” it “shall be subject to mandatory and binding arbitration as more fully discussed in the Arbitration agreement attached hereto as Exhibit A.” (Italics added.) The “as more fully discussed” reference to Exhibit A indicates it is intended to be explanatory, rather than creative, of the arbitration right.

Indeed, even if we ignore the reference to the attached Exhibit A, as well as its content, the remaining language in the share agreement, stating that disputes “shall be subject to mandatory and binding arbitration” is itself sufficient to create an enforceable arbitration agreement. All that is required is a written document (or documents) evidencing an intent to submit certain disputes to binding arbitration, and identifying the parties to be bound. (Code Civ. Proc., §§ 1281, 1297.72.)

While the parties are certainly free to specify other details of their arbitration agreement, such as the number of arbitrators, the identity of an arbitrator or arbitrators, the timing and location of the arbitration, etc., those details are not required. Instead, Code of Civil Procedure expressly provides for, or empowers the court to fill in, whatever procedural details the parties fail to expressly agree upon. (See Code Civ. Proc., § 1281.6 [appointment of arbitrators]; Code Civ. Proc., § 1282 [number of arbitrators and delegation of powers]; Code Civ. Proc., § 1282.2 [conduct of arbitration hearings]; Code Civ. Proc., § 1283.5, subd. (b) [discovery in non-personal injury cases].)

Consequently, whether or not the arbitration agreement terms attached as Exhibit A to the parties’ written agreement are considered to be incorporated into that agreement, the other language in the agreement is sufficient to qualify as a binding arbitration provision.

In terms of the scope of the arbitration provision, we agree with Robson that it is broad enough to cover all the claims at issue. We note that in light of California’s strong public policy favoring arbitration as a method of dispute resolution, we are required to “indulge every intendment to give effect to such proceedings (Lewsadder v. Mitchum, Jones & Templeton, Inc. [(1973)] 36 Cal.App.3d 255, 259) and order arbitration unless it can be said with assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. (Retail Clerks Union, Local 775 v. Purity Stores, Inc. [(1974)] 41 Cal.App.3d 225, 231.)” (Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9-10.)

In this case, the arbitration provision is quite broad, covering any dispute “arising from or in relation to” the share agreement. Such a provision covers tort claims as well as contractual ones. “It has long been the rule in California that a broadly worded arbitration clause, such as we have here, may extend to tort claims that may arise under or from the contractual relationship. (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.)

And, according to the Edlers’ complaint, each of their causes of action arises from a single set of facts. Prominent among those facts is the assertion they were misled into executing “paperwork,” prepared by a lawyer suggested by Robson, which did not accurately reflect the agreement they believed they had made for ownership and control of the clinic. That “paperwork” is the share agreement, supplemented by Don Edler’s employment agreement.^[1] Consequently, it would be difficult, certainly, to conclude that any of those causes of action does not “aris[e] from or in relation to” that share agreement. Such difficulty must be resolved in favor of the arbitration option. Consequently, we conclude each of the Edlers’ causes of action falls within the scope of the share agreement arbitration provision.

II

We next consider the Edlers’ contention Robson waived his right to compel arbitration by his participation in the court proceedings. The Edlers argue “waiver” is factual issue, and the court had discretion to determine that under the facts of this case, Robson’s litigation conduct amounted to a waiver of any right to arbitrate the dispute.

But certain parameters -- defining what litigation conduct may or may not constitute a waiver -- have been established by case law. The trial court has no “discretion” to ignore those parameters. “When the facts are undisputed and only one inference may reasonably be drawn, the issue of waiver is one of law and the reviewing court is not bound by the trial court’s ruling.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1206.)

In this case, the facts relating to Robson’s supposed waiver of his right to enforce arbitration are undisputed. His litigation conduct amounted only to a spirited defense against the Edlers’ efforts to obtain preliminary relief. That defense did include Robson’s own petition for a TRO, but as the Edlers themselves suggested to the trial court, his petition was designed solely to undo the temporary relief the court had already given to the Edlers. In effect, what Robson sought was only reconsideration of that prior order, based upon additional information.

But what Robson never did was to seek any affirmative relief, any discovery, or any adjudication of the merits of this dispute. Instead, he promptly filed his petition to compel arbitration, and then acceded to a delay in the adjudication of that petition only because the Edlers sought to amend their complaint. Robson’s conduct, viewed in the context of controlling law, simply cannot be interpreted as a waiver of his right to compel arbitration.

It has long been settled in California that “it is the judicial litigation of the merits of arbitrable issues which waives a party’s right to arbitration.” (Doers v. Golden Gate Bridge Highway and Transportation Dist. (1979) 23 Cal.3d 180, 188.) Later cases have established that waiver can also be based upon a finding that the conduct of the petitioning party has actually prejudiced the ability of the party opposing arbitration to fairly adjudicate its claim in arbitration. But short of that, the right to compel arbitration is preserved.

As explained in St. Agnes Medical Center v. PacifiCare of California, supra,31 Cal.4th at pp. 1203-1204, “In California, whether or not litigation results in prejudice . . . is critical in waiver determinations. (Keating v. Superior Court (1982) 31 Cal.3d 584, 605, disapproved on other grounds, Southland Corp. v. Keating (1984) 465 U.S. 1; Doers, supra, 23 Cal.3d at pp. 188-189; Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205.) That is, while ‘”[w]aiver does not occur by mere participation in litigation”’ if there has been no judicial litigation of the merits of arbitrable issues, ‘”’waiver could occur prior to a judgment on the merits if prejudice could be demonstrated.’”’ (Christensen v. Dewor Developments [(1983)] 33 Cal.3d [778,] 782.)

“Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses. (See Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1197 [mere expense of responding to motions or other preliminary pleadings filed in court is not the type of prejudice that bars a later petition to compel arbitration]; accord, Crysen/Montenay Energy Co. v. Shell Oil Co. (2d Cir.2000) 226 F.3d 160, 163.)

“Rather, courts assess prejudice with the recognition that California’s arbitration statutes reflect ‘”a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution”’ and are intended ‘”to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.”’ (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Prejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration. For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration (e.g., Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1366; Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558; Davis v. Continental Airlines, Inc., supra, 59 Cal.App.4th at p. 215); where a party unduly delayed and waited until the eve of trial to seek arbitration (e.g., Sobremonte v. Superior Court [(1998)] 61 Cal.App.4th [982,] 995-996); or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence (e.g., Christensen v. Dewor Developments, supra, 33 Cal.3d at p. 784).”

None of those circumstances is present in the instant case. There is simply no evidence the Edlers’ ability to proceed with their case in arbitration has been prejudiced by anything Robson did in the court below. Thus, the undisputed facts of this case cannot justify the conclusion Robson “waived” his right to arbitrate.^[2]

The order denying Robson’s petition to arbitrate is reversed. The case is remanded to the trial court with directions to issue a new order compelling arbitration. Robson is to recover his costs on appeal.

BEDSWORTH, ACTING P. J.

WE CONCUR:

MOORE, J.

IKOLA, J.

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^[1] The Edlers suggest that Robson’s petition is flawed in its reliance upon the arbitration provision contained in Don Edler’s employment agreement, as neither Robson himself nor Joanne Edler is a party to that particular employment agreement. The assertion is a red herring. To the extent the Edlers are seeking to challenge the validity of Don’s employment agreement with the clinic (and while the first amended complaint is not a model of clarity, it seems they are), then the fact that the clinic (the only other party to Don Edler’s employment agreement) is not a party to the litigation would appear to be more of a problem for them than it would be for Robson. Moreover, the fact that Joanne herself is not a party to that employment agreement would suggest she has no standing to pursue any such claim. In short, the problems the Edlers identify in connection with enforcing the employment agreement’s arbitration provision in this litigation are directly attributable to flaws in their pleading. The Edlers’ failure to plead a complete and clear claim cannot be used to impair Robson’s ability to otherwise enforce the right to arbitrate under the share agreement.

^[2] The fact that Robson also successfully moved to disqualify the first trial judge assigned to the case, pursuant to Code of Civil Procedure section 170.6, changes nothing. In St Agnes, the Supreme Court also specifically concluded that a party’s motion for change of venue, filed prior to that party’s petition to arbitrate, did not effect a waiver of the right to enforce arbitration. “[A] party is not required to litigate the issue of arbitration in an improper or inconvenient venue, and that a party’s position on venue does not necessarily reflect a position on arbitrability.” (St Agnes Medical Center v.PacifiCare of California, supra, 31 Cal.4th at p. 1205.) The same analysis would apply here. Robson had a right to ensure that his petition to compel arbitration be heard by an unbiased judge. He waived nothing by enforcing that right.