McNett v. Network Management Group

Filed 10/12/06 McNett v. Network Management Group CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

SECOND APPELLATE DISTRICT

DIVISION EIGHT

APPEAL from an order of the Superior Court of Los Angeles County, Elihu M. Berle, Judge. Affirmed.

Van Etten Suzumoto & Becket, Eliot G. Disner, Colleen M. Regan, and Noah E. Jussim for Defendant and Appellant.

Teuton, Loewy & Parker and Robert G. Loewy for Plaintiff and Respondent.

* * * * * *

Network Management Group, Inc., (Network) appeals from an order of the trial court denying a motion to compel arbitration and to stay this action. We hold Network’s employee handbook, of which a claimed provision for arbitration was a part, did not create a contract for arbitration between Network and its employees, but was intended primarily to explain what Network expected of its employees and what its employees might expect from Network. Therefore, the trial court did not err in ruling Network failed to establish an enforceable arbitration agreement.

FACTUAL AND PROCEDURAL BACKGROUND

1. General Background

Network is in the business of providing proposition player services (see Bus. & Prof. Code, § 19984) to cardrooms. Respondent Brian McNett allegedly was employed by Network from November 1999 until May 2004 as a proposition player, supervisor and, ultimately, senior manager.

Network terminated McNett in May 2004, purportedly as a result of his unauthorized taking and use of company property without the company’s knowledge or consent in violation of company policy and law. 2. The Class Action Complaint

In March 2005, McNett filed a class action complaint against Network on behalf of himself and other supervisors and senior managers employed or formerly employed by Network. McNett alleged Network failed to pay its supervisors and senior managers overtime wages, failed to pay such employees for meal and rest periods and failed to maintain adequate time keeping records, all in violation of California law, and the conduct entitled such employees to waiting time penalties under the Labor Code. The complaint further alleged that Network’s failure to fully compensate supervisors and senior managers constituted an unfair and unlawful business practice (Bus. & Prof. Code, § 17200) and Network’s use of noncompete clauses in agreements with such employees resulted in an unlawful restraint of trade (Bus. & Prof. Code, § 16600). McNett sought appropriate relief for those violations.

3. Motion for Order To Compel Arbitration

Network responded to the complaint by filing a motion for an order to compel arbitration and for a stay of the action under the California Arbitration Act. (Code Civ. Proc., §§ 1281.2, 1281.4, 1281.7.) Network asserted that McNett had agreed in writing to arbitrate all disputes arising from his employment relationship with Network.

4. Evidence in Support of Motion

In support of its motion, Network submitted the declaration of its director of human resources, David Tierney. Tierney declared he was directly responsible for and personally involved in the creation of Network’s employee handbook. When McNett was hired, and periodically afterwards, he was provided with an employee handbook and updates to the handbook. The employee handbook was spiral bound and included two sections: a section setting forth Network’s policies and a second section comprised of several exhibits.

Among other things, Tierney stated that “the policies section and the exhibits, though divided into separate sections, were bound together and presented to employees as and with the intention of forming a single document” and were “presented to employees as such.” Tierney attached a copy of relevant portions of the operative September 2002 employee handbook to his declaration.

The first page of the employee handbook set forth a message to employees from Network’s chief executive officer, stating: “This Employee Handbook does not create a contractual relationship between [Network] and its employees, but is meant primarily to explain what [Network] expects of you and what you can expect from [Network]. All provisions in this Employee Handbook are subject to revision and modification at any time by [Network].” (Italics added.)

Within the body of the handbook, at page 33, appeared a provision reciting that “[a]s a condition of employment, or of continued employment, employee and [Network] agree that in the event of a dispute between them resulting in any manner from employee’s employment with [Network] . . . they shall attempt to resolve such dispute by mediation, and if not so resolved, by binding arbitration in accordance with [Network’s] arbitration policy.”

Attached as exhibit A to the handbook was an acknowledgement form for the employee to sign and date. Above the signature line appeared the following the language: “I acknowledge that this handbook is neither a contract of employment nor a legal document.^[[1]] I have received the handbook, and I understand that it is my responsibility to read, be familiar with and comply with the policies contained in this handbook and any revisions made to it.”^[2] McNett apparently signed the acknowledgement form on December 6, 2002.

Attached as exhibit E to the handbook was a three-page document with the headings, “Mediation of Disputes“ and “Arbitration of Disputes.” Under “Mediation of Disputes,” the document states, “Before invoking the arbitration procedure set forth below, the parties shall first participate in mediation of any dispute arising under this Agreement.”^[3] (Italics added.) Under “Arbitration of Disputes,” the document states: “If the parties are unable to resolve a dispute relating to this Agreement through mediation, they shall submit any such dispute . . . to arbitration . . . .” (Italics added.)

At the end of exhibit E is a statement that “[t]he undersigned employee hereby agrees to be bound by the mediation and arbitration procedures set forth above.” (Italics added.) There are lines at the end of exhibit E for the employee to date and sign the document, and McNett purportedly did so on December 6, 2002. Exhibit E provided no line for a Network representative’s signature, and thus exhibit E was not signed by Network.

5. Opposition to Motion

McNett opposed the motion to compel arbitration on numerous grounds, urging among other things that the purported arbitration agreement is not a binding contract and is ambiguous in scope.

6. Hearing and Denial of Motion

At the hearing on the motion to compel arbitration, the court questioned whether Network and McNett had entered into an agreement to arbitrate. The court observed that the employee handbook stated it “does not create a contractual relationship between Network and its employees, but is meant primarily to explain what Network expects of you and what you can expect from Network.” The court also noted the acknowledgement form McNett signed specifically stated the handbook “is neither [a] contract of employment nor a legal document.” The court inquired, “if it is not a legal document . . . [and] is just another piece of paper, then what is an employee to think?”

Network’s counsel admitted the acknowledgement form was ambiguous and “perhaps does not create an agreement.” She argued, however, the public policy in favor of arbitration is so strong that the ambiguity should be resolved in favor of arbitration, and the court should look at the documents as a whole to “create an agreement.” Counsel contended the Tierney declaration provided sufficient evidence to support a conclusion that exhibit E was intended to be a separate document and the acknowledgement form language meant only that the handbook itself “is neither a contract of employment nor a legal document.”

The court concluded the handbook, including its attached exhibits, “does not express any intent for anyone to be bound by any provisions of the document in terms [of] an arbitration clause.” The court reasoned the handbook itself stated “this employee handbook does not create a contractual relationship between Network and its employees, but is meant primarily to explain . . . what Network expects of you and what you may expect from Network,” and Network provided in the acknowledgement form that “this handbook is neither a contract [of] employment nor a legal document.”

Based upon Network’s inability to establish an enforceable arbitration agreement, the court denied the motion to compel arbitration. This timely appeal followed.

DISCUSSION

California Code of Civil Procedure section 1281.2 provides in pertinent part that on petition of a party to an arbitration agreement alleging a written agreement to arbitrate a controversy and a refusal of a party to that agreement to arbitrate such controversy, “the court shall order the petitioner and respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists . . . .” Whether a valid agreement to arbitrate exists is determined by “state law principles regarding the formation, revocation and enforceability of contracts generally.” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1327-1328; see Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 [“general contract law principles” apply to enforcement of arbitration agreements].) In essence, a petition to compel arbitration is a suit in equity to compel specific performance of a contract. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 411.)

A petitioner (or, in this case, the movant) seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) In ruling on such a petition, the trial court sits as a trier of fact, “weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Ibid.)

In the present case, McNett argues we should affirm the trial court’s denial of Network’s motion to compel arbitration because the trial court properly exercised its discretion in finding, as a factual matter, that the parties did not mutually assent to a binding arbitration agreement. (See Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 141 [“Mutual assent is a question of fact”].) Network, on the other hand, argues the trial court’s denial of its motion to compel arbitration is subject to our independent review in that “ ‘[i]nterpretation of a written document where extrinsic evidence is unnecessary is a question of law for independent review by the Court of Appeal. [Citations.]’ “ (Romo v. Y-3 Holdings, Inc. (2001) 87 Cal.App.4th 1153, 1158; see also Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.)

The trial court here received extrinsic evidence, by way of the Tierney declaration, as to Network’s intent in drafting the employee handbook but disregarded such evidence in ruling the employee handbook did not establish an enforceable arbitration agreement. The subjective, unexpressed beliefs of the parties do not serve as the basis for whether a contract is formed. (Alexander v. Codemasters Group Limited, supra, 104 Cal.App.4th at p. 150.) McNett offered no extrinsic evidence regarding the circumstances surrounding the formation of the alleged contract.^[4] The order denying the motion to compel arbitration is therefore subject to our independent review.

In reviewing the trial court’s order, we start with basic principles: “Where the language of a contract is clear and not absurd, it will be followed. [Citations.] But if the meaning is uncertain, the general rules of interpretation are to be applied. [Citations.] When a contract is reduced to writing, the parties’ intention is ascertained from the writing alone, if possible, subject to other provisions governing interpretation. [Citation.] The trial court’s determination of whether an ambiguity exists in a contract is a question of law, subject to independent review on appeal. The trial court’s resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict.” (See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 741, pp. 827-828.) Moreover, “ ‘[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) Additionally: ‘In the construction of a statute or instrument, the office of the judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.’ (Code Civ. Proc., § 1858.)’ “ (Romo v. Y-3 Holdings, Inc., supra, 87 Cal.App.4th at pp. 1158-1159.) We must determine the trial court’s interpretation is erroneous before we may properly reverse. (Parsons v. Bristol Development Co., supra, 62 Cal.2d at p. 866.)

The primary facts are not in conflict. McNett received a copy of Network’s September 2002 employee handbook. The first page of the handbook contains a message to employees from Network’s chief executive officer that explicitly states: “This Employee Handbook does not create a contractual relationship between [Network] and its employees, but is meant primarily to explain what [Network] expects of you and what you can expect from [Network].” (Italics added.) The handbook was divided into a “policies” section and an exhibit section that were bound together and presented to employees as a single document. A provision regarding arbitration appears at page 33 of the “policies” section to the effect that the “employee and [Network] agree that in the event of a dispute between them resulting in any manner from employee’s employment with [Network] that they shall attempt to resolve such dispute by mediation, and if not so resolved, by binding arbitration in accordance with [Network’s] arbitration policy.” That provision was followed in the handbook by exhibit A, an acknowledgement form that Network required McNett to sign. Exhibit A specifically required McNett to acknowledge that “this handbook is neither a contract of employment nor a legal document.” (Italics added.)

Reading these provisions together, it is evident the handbook was not intended by the parties to create a contractual relationship between Network and its employees, but rather primarily to explain what Network “expected” of its employees and what its employees “might expect” from Network. In light of such intent, the provision on page 33 of the handbook stating Network and the employee “shall attempt to resolve [an employment] dispute by mediation, and if not so resolved, by binding arbitration in accordance with [Network’s] arbitration policy” does not give rise to a contract to arbitrate such disputes. A reasonable interpretation of such language is that Network and the employee may expect an employment dispute to be arbitrated but such expectation was not a contractual obligation or a “legal document” obligating either party to arbitrate.

Citing Romo v. Y-3 Holdings, Inc., supra, 87 Cal.App.4th 1153, Network contends that exhibit E comprised a separate and severable agreement providing for mediation and binding arbitration of disputes. Romo is not helpful to Network. First of all, in Romo, the court held there was no enforceable agreement for arbitration between the employer and employee. The court found the employee’s signature on an “Employee Acknowledgement” in which she agreed to abide by the “policies and rules” set forth in an employee handbook governing her conduct, wages and working conditions during her employment did not bind her to the portion of the handbook entitled “Mutual Agreement to Arbitrate.” (Id. at p. 1159.)

The court did hold the Mutual Agreement to Arbitrate was a “separate and severable” agreement from the remainder of the handbook. (Romo v. Y-3 Holdings, Inc., supra, 87 Cal.App.4th at pp. 1159-1160.) However, the Mutual Agreement to Arbitrate in Romo differed in major respects from exhibit E. That Mutual Agreement to Arbitrate contained language suggesting it was intended to be a complete stand-alone agreement. For example, it provided that “ ‘[t]his is the complete agreement of the parties on the subject of arbitration of disputes . . .’ “ and “ ‘[t]his Agreement supersedes any prior or contemporaneous oral or written agreement or understanding on the subject.’ “ (Id. at p. 1159.) No such language is contained in exhibit E. Under the subheading “Agreement to Arbitrate,” the Mutual Agreement to Arbitrate specifically provided that “the company and the employee hereby consent to the resolution by arbitration of all claims or controversies . . . .” (Id. at p. 1155.) Exhibit E provides only that the employee agrees to be bound to the mediation and arbitration “procedures” set forth in the document, and there is no language explicitly agreeing to mediate and arbitrate all claims and controversies. The Mutual Agreement to Arbitrate in Romo contained lines for dates and signatures of both the employer and employee on the final page (but neither signed the document). (Id. at pp. 1155-1156.) Exhibit E provides only for the date and signature of the employee and is wholly devoid of any mutual agreement for arbitration.

Furthermore, there is no indication the employee handbook in Romo v. Y-3 Holdings, Inc. contained language negating the formation of any “contractual relationship,” “contract of employment” or “legal document.”

Finally, in Romo the document identified “this Mutual Agreement to Arbitrate” as “the Agreement” and consistently referred to “this Agreement” or “[t]his Agreement to Arbitrate” within itself. (Romo v. Y-3 Holdings, Inc., supra, 87 Cal.App.4th at p. 1159.) Exhibit E refers to “the Agreement” but nowhere defines the term leaving the meaning ambiguous. Network argues that if any ambiguity exists, the ambiguity must be construed in favor of arbitration. There is no public policy in favor of enforcing arbitration of issues the parties have not agreed to arbitrate. (Id. at p. 1158; Coopers & Lybrand v. Superior Court (1989) 212 Cal.App.3d 524, 537.)

McNett’s signature at the end of exhibit E did not create a valid arbitration agreement, and the court did not err in finding there was no enforceable agreement to arbitrate.

DISPOSITION

The order is affirmed. Respondent is to recover his costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

FLIER, J.

We concur:

COOPER, P. J.

RUBIN, J.

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line Lawyers.

^[1] Tierney asserted in his declaration that the first part of the sentence was intended to coincide with the message that a signed acknowledgement of the handbook would not convert an at-will employment into one for a specific term or contract for employment and the second part of the sentence was merely intended to convey “the same message with different language.” Tierney contended the language meant only that the handbook “is not the agreement.”

^[2] Tierney testified he intended this sentence to create an agreement between the employee and Network, the agreement being to “comply with the policies contained in this handbook.”

^[3] Exhibit E does not define the word “Agreement.” In his declaration, Tierney asserted he personally intended “Agreement” to refer to the employee’s agreement in exhibit A “to read, be familiar with and comply with the policies contained in this handbook.”

^[4] McNett’s counsel filed a declaration stating that Network itself had previously filed a lawsuit against McNett for embezzlement in the superior court without seeking arbitration. Network’s subsequent conduct, however, was not material to whether the parties entered into an enforceable arbitration agreement in the first place.