Ruby
v. Allen Matkins et al.
Filed 10/2/13
Ruby v. Allen Matkins et al. CA2/3
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
THREE
HOWARD F. RUBY, individually
and
as Trustee, etc.,
Plaintiff and Respondent,
v.
ALLEN MATKINS LECK GAMBLE
MALLORY & NATSIS LLP,
Defendant and Appellant.
B243423
(Los Angeles County
Super. Ct.
No. BC479860)
APPEAL
from an order of the Superior Court
of
County, Mark V. Mooney, Judge. Reversed with directions.
Jeffer,
Mangels, Butler & Mitchell, Robert E. Mangels, Susan Allison and
Andrew I. Shadoff for Defendant and Appellant.
Kinsella
Weitzman Iser Kump & Aldisert, Dale F. Kinsella and
Jonathan Steinsapir for Plaintiff and Respondent.
_______________________________________
Allen
Matkins Leck Gamble Mallory & Natsis LLP (Allen Matkins) appeals an order
denying its motion to compel Howard F. Ruby to arbitrate a legal malpractice
action. Ruby is not a party to the
engagement letter agreement between Allen Matkins and its client R&B Realty
Group, LP (R&B) containing an arbitration clause. We conclude, however, that
Ruby as a nonparty is nonetheless bound by the arbitration agreement because he
voluntarily accepted the benefits of Allen Matkins’s representation under the
engagement letter. We therefore will
reverse the order with directions to grant the
AND PROCEDURAL BACKGROUND
1. Factual
Background
R&B
manages apartment buildings and corporate housing under the fictitious business
names Oakwood Worldwide and Oakwood. The
Howard F. Ruby Trust (Ruby Trust) is a general partner in R&B, a
limited partnership. Ruby is trustee of
the Ruby Trust.
R&B
does not own the buildings that it manages.
Instead, at the time of the events in this case, many of the buildings
were owned by separate partnerships (the Property Partnerships) owned by
partners only some of whom were general partners in R&B.
Partners
in the Property Partnerships sought a means to cash out of their investments
without realizing taxable capital gains.
They decided to accomplish this through an umbrella partnership real
estate investment trust (UPREIT) and entered into negotiations with the
Archstone-Smith Trust (Archstone).
R&B hired Allen Matkins as its legal counsel in connection with the
UPREIT transactions.
Allen
Matkins and R&B entered into an engagement letter agreement dated December 5, 2001, for the
provision of legal services “in connection with partnership, tax and related
matters for the Company [defined as Oakwood Worldwide] and its
affiliates.†The engagement letter
included an arbitration clause stating, in relevant part, “in the event of any
dispute arising out of or relating to this agreement, our relationship, or the
services performed (including but not limited to disputes regarding attorneys’
fees or costs and those alleging negligence, breach of fiduciary duty, fraud or
any claim based upon a statute), such dispute shall be resolved by submission
to binding arbitration . . . . †Darby T. Keen signed the engagement letter as
president of Oakwood Worldwide.
The
UPREIT transactions were completed, including certain tax-related agreements
designed to indemnify the partners in the Property Partnerships against any tax
liability. The partners contributed
their real property interests to a separate entity in exchange for ownership
interests known as units. The partners
later allegedly were forced to sell those units in connection with a “reverse
merger†transaction and incurred capital gains tax liabilities as a result. Archstone refused to indemnify the partners
for their tax liabilities.
Ruby
and others filed a complaint against several entities for damages relating to
their tax liabilities. The defendants
successfully moved to compel arbitration based on arbitration provisions in the
tax-related agreements. The arbitration
panel concluded that the tax-related agreements provided no tax protection to
the partners in the event of a reverse merger and that the partners were entitled
to no indemnity.
2. Trial
Court Proceedings
Ruby,
individually and as trustee of the Ruby Trust, filed a complaint against Allen
Matkins in February 2012 and filed a first amended complaint in April 2012.
as a partner in the Property Partnerships in connection with the UPREIT
transactions. He alleges counts against
Allen Matkins for professional negligence
and breach of fiduciary duty arising from such representation.
Ruby
alleges that he sought complete tax protection in the UPREIT transactions,
including an indemnity in the event that he realized any capital gains as a
result of any action by Archstone. He
alleges that Allen Matkins assured him that it had secured complete tax
protection for him in the transactions.
He alleges, however, that Allen Matkins failed to secure complete tax
protection for him because it failed to include a “merger protectionâ€
provision in the tax-related agreements.
Allen
Matkins filed a motion to compel arbitration and stay the action pending the
completion of the arbitration. It argued
that Ruby, individually and as trustee of the Ruby Trust, was bound by the
arbitration agreement in the engagement letter because (1) he alleges that
Allen Matkins acted as his attorney and (2) the firm performed all of its
services in connection with the UPREIT transactions pursuant to the engagement
letter. Allen Matkins also argued that
that the Ruby Trust as a general partner in R&B was an agent of
R&B and a beneficiary of the engagement letter and therefore was bound by
the arbitration agreement, and that Ruby individually was an agent and
beneficiary of the Ruby Trust and therefore was similarly bound by the
arbitration agreement.
Ruby
argued in opposition that he was not bound by the arbitration agreement in the
engagement letter because (1) he was not a party to the arbitration agreement
and (2) the claims alleged in his complaint did not arise from Allen
Matkins’s representation of R&B or its representation of Ruby as a general
partner in R&B.
Allen
Matkins argued in reply that Ruby was bound by the arbitration agreement
because all of the work it performed allegedly as Ruby’s legal counsel it
performed pursuant to the engagement letter.
It argued that Ruby had not shown that it represented Ruby separate and
apart from its representation of R&B.
Allen Matkins also argued that Ruby was bound by the arbitration
agreement because he voluntarily accepted the benefit of the legal services
provided by Allen Matkins pursuant to the engagement letter and because his
claims were inextricably intertwined with those legal services.
Allen
Matkins filed a declaration by Keen in support of its reply stating that he
understood the reference to “affiliates†in the engagement letter to include
the general partners of the Property Partnerships, and that all of the work
performed by Allen Matkins as alleged in the complaint was performed pursuant
to the engagement letter. Ruby objected
to the Keen declaration as untimely and on other grounds.
The
trial court stated at the hearing on the motion to compel arbitration that it
was “not quite clear that these dots have been all connected to Mr. Ruby and
his position as a general partner with these property partnerships and this
engagement letter that was signed. I
think that a compelling argument can be made that the advice and the actions
given regarding, regarding these property partnerships is somewhat different
than what was involved in the R&B Realty Group representation.†The court therefore denied the motion in a
minute order filed on August 7, 2012,
and overruled Ruby’s evidentiary objections.
Allen Matkins timely appealed the order.
Allen
Matkins contends (1) Ruby is bound by the arbitration agreement because the
scope of legal services under the engagement letter expressly encompasses
matters involving R&B’s affiliates, and Ruby failed to show that Allen
Matkins represented him separately from its representation of R&B under the
engagement letter; (2) Ruby is bound by the arbitration agreement as a
nonsignatory because he voluntarily accepted the benefits of the legal services
provided under the engagement letter; and (3) Ruby is bound as a nonsignatory
because he had a “preexisting relationship†with R&B and because his
claims are “inextricably intertwined†with the legal services provided under
the engagement letter.
Parties
to an arbitration agreement can be compelled to arbitrate disputes that are
within the scope of the arbitration agreement.
Code of Civil Procedure section 1281.2 states that on a petition filed
by a party to a written arbitration agreement, a court must order a party to
the agreement to arbitrate a controversy if it finds that an agreement to
arbitrate the controversy exists, unless a specified exception applies. The California Arbitration Act (Code Civ.
Proc., § 1280 et seq.) “reflects a
‘strong public policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution.’
[Citation.]†(
Cal.4th 372, 380.)
As
a general rule, a person can be compelled to arbitrate a dispute only if he or
she has agreed to resolve such a dispute by arbitration. (Daniels
v. Sunrise Senior Living, Inc. (2013) 212 Cal.App.4th 674, 680;
92 Cal.App.4th 987, 990.) The
strong public policy in favor of arbitration does not support the compelled
arbitration of a dispute that a party has not agreed to arbitrate. (Victoria
v. Superior Court (1985) 40 Cal.3d 734, 744.) Whether a nonsignatory is bound by an
arbitration agreement is a question of law that we review de novo if the
material facts are undisputed. (
Cal.App.4th 1504, 1512.)
Courts
have recognized certain exceptions to the general rule that only
a signatory to an arbitration agreement can be compelled to
arbitrate. For example,
a nonsignatory to an arbitration agreement is bound by the agreement and
can be compelled to arbitrate if an agent entered into the agreement on his or
her behalf. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706-709
[held that a state employee was bound by an arbitration agreement in a
group medical plan entered into by a state employees’ retirement board as agent
for the employees]; Garrison v. Superior
Court (2005) 132 Cal.App.4th 253, 264-267 [held that the plaintiffs in
a wrongful death action were bound by arbitration agreements with a
residential care facility entered into by the decedent’s attorney in fact under
a durable power of attorney].)
An
arbitration agreement also may be binding on a nonsignatory in other
circumstances where the nature of the nonsignatory’s relationship with a party
to the agreement supports the implied authority of the party to bind the
nonsignatory (Crowley
(2008) 158 Cal.App.4th 1061, 1070 (Crowley)
[discussing cases where a preexisting relationship “gives the party to the
agreement authority to bind the nonsignatoryâ€]; Matthau v. Superior Court (2007) 151 Cal.App.4th 593, 600
[stating that an arbitration agreement is binding on a nonsignatory if a
preexisting relationship “supports the implied authority of the party to bind
the nonsignatoryâ€]) or where the nonsignatory receives the benefit of the
contract containing the arbitration agreement (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 81-84
[held that after seeking and receiving the benefit of an insurance policy, the
insured’s wife was bound by the policy’s arbitration clause];
Cal.App.3d 475, 478‑479 (Harris)
[held that a doctor was bound by an arbitration agreement between
a medical group and a patient, both as an employee of the medical group
and as a third party beneficiary of the arbitration agreement]; see
Cal.App.4th 1365, 1371‑1373 [held that secured creditors were not third
party beneficiaries of the debtor’s agreement with a financial advisor to
obtain financing]).
Civil
Code section 1589 states, “A voluntary acceptance of the benefit of
a transaction is equivalent to a consent to all the obligations arising
from it, so far as the facts are known, or ought to be known, to the person
accepting.†Thus, a nonparty to an
arbitration agreement who knowingly and voluntarily accepts the benefits of the
contract containing the arbitration agreement is bound by the arbitration
agreement and can be compelled to arbitrate.
(Harris, supra, 188 Cal.App.3d at p. 479 [stating that a doctor’s
acceptance of the benefits of a health plan agreement, to which he was not
a party, by obtaining patients “necessarily entailed acceptance of the
agreement that members’ claims would be subject to binding arbitrationâ€] ; cf.
West (2008) 165 Cal.App.4th 1511, 1520 [holding that an employee who
accepted the benefits of her employer’s agreement with another company was
“bound by the arbitration agreement both as an
agent-employee . . . and as a third party beneficiaryâ€
of the agreement and therefore was not a stranger to the arbitration agreement
for purposes of Code Civ. Proc., § 1281.2, subd. (c)].)
Allen
Matkins as counsel for R&B negotiated the UPREIT transactions with
Archstone. Those transactions were
designed to allow partners in the Property Partnerships, including Ruby, to
cash out of their real property investments without realizing taxable capital
gains. Thus, Allen Matkins’s
representation of R&B directly benefited the partners in the Property
Partnerships. This is true regardless of
whether Allen Matkins also separately represented Ruby in connection with the
UPREIT transactions. Ruby as a general
partner in R&B was aware of this and voluntarily accepted the benefits
conferred on him. We conclude that
having accepted the benefits of the representation provided pursuant to the
engagement letter agreement, Ruby, individually and as trustee of the Ruby
Trust, is bound by the arbitration agreement contained in the engagement
letter. We therefore conclude that the denial
of the motion to compel arbitration was error and that the motion must be
granted. In light of our conclusion, we
need not address Allen Matkins’s other arguments for compelling arbitration.
The order denying the petition to
compel arbitration is reversed with directions to grant the motion. Allen Matkins is entitled to recover its
costs on appeal.
NOT TO BE PUBLISHED IN THE
OFFICIAL REPORTS
CROSKEY,
J.
We Concur:
KLEIN, P. J.
KITCHING, J.
name="_ftn1" title="">[1]
is not a legal entity and has no capacity to sue or be sued. (Powers
v. Ashton (1975) 45 Cal.App.3d 783, 787; see Weil & Brown, Cal.
Practice Guide: Civil Procedure Before Trial (The Rutter Group 2013) ¶ 2:6, p.
2-3.) The proper party with respect to
the trust is Ruby as trustee. (See Code Civ.
Proc., § 369, subd. (a)(2).)
