San Francisco Unified School Dist. v. Keenan & Assocs.

Filed 5/15/07 San Francisco Unified School Dist. v. Keenan & Assocs. CA

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION FOUR

Defendant Keenan & Associates (Keenan) appeals from an order denying its motion to compel plaintiff San Francisco Unified School District (SFUSD) to arbitrate its claims against Keenan pursuant to arbitration clauses contained in agreements between Keenan and two joint powers agencies (JPAs).^[1] Although SFUSD is a member of the JPAs, it is not a signatory to the agreements between Keenan and the JPAs. Keenan, nonetheless, claims it is entitled to enforce the arbitration provisions because SFUSD is a third party beneficiary of the contracts; SFUSD, by reason of its membership in the JPAs, is bound by Government Code section 6508.1 to assume the obligations of the JPAs; and the principles of equitable estoppel and agency apply. Keenan further claims that all proceedings between it and SFUSD should be stayed pending completion of arbitration. Additionally, Keenan appeals from an order denying its motion for reconsideration of the order denying its motion to compel arbitration. We affirm the orders denying Keenans motion to compel arbitration and motion for reconsideration.

I.FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties

Keenan is an insurance broker that helps public entities to purchase insurance from insurers. Typically, public entities, like SFUSD, purchase their insurance as members of insurance pools or JPAs. As part of its services, Keenan also assists public entities with operation of the JPAs. As relevant here, Keenan acts as an insurance broker for the Northern California Regional Liability Excess Fund Joint Powers Authority (Nor Cal) and the Schools Association for Excess Risk Joint Powers Authority (SAFER). SFUSD is a member of Nor Cal and SAFER.

B. The JPA Agreements

In 1998 and 2003, Keenan entered into management services agreements with Nor Cal (Nor Cal Agreements); Keenan also entered into a similar agreement with SAFER in 2002 (SAFER Agreement). In the Nor Cal Agreements and the SAFER Agreement (collectively referred to as the JPA Agreements), Keenan agreed to provide services that included general administration, underwriting administration, claims administration, and risk management services. The JPA Agreements contain arbitration clauses.

C. The Claims Agreements

In July 2004, Keenan entered into a claims administration services agreement with SFUSD, in which Keenan agreed to administer property or liability claims for SFUSD (Claims Agreement). The Claims Agreement contains an arbitration provision. SFUSD is a signatory of the Claims Agreement.

D. Initial Complaints Against Keenan and First Motion to Compel Arbitration

In November 2004, the County of Santa Clara filed a complaint on its own behalf, on behalf of the general public, and on behalf of other similarly situated public entities, alleging violations of Business and Professions Code sections 17200 et seq. and 17500 et seq., and breach of fiduciary duty against Keenan; Driver Alliant Insurance Services, Inc. (Driver); and Marsh & McLennan Companies, Inc., Marsh Inc., and Marsh USA, Inc. (collectively, Marsh). The complaint alleged that defendants are the primary insurance brokers that serve California counties, schools and cities. The complaint further alleged that defendants have abused their positions of trust with their clients to obtain kickbacks, improper fees, and benefits from insurers to whom they steer insurance business for public entity clients.

In January 2005, the County of Santa Clara filed an amended complaint, alleging the same essential causes of action and adding SFUSD as a plaintiff. Keenan moved to compel arbitration of SFUSDs claims against it and to stay the trial court proceedings. (See Code Civ. Proc.,  1281.4.)

In June 2005, the trial court granted in part and denied in part Keenans motion to compel arbitration. The court determined that SFUSD was not bound by the JPA Agreements because it was not a signatory of those agreements. However, the court granted Keenans motion to compel arbitration of claims arising solely in connection with the Claims Agreement, and stayed arbitration of these claims pending resolution of SFUSDs nonarbitrable claims. (Code Civ. Proc.,  1281.2, subd. (c) (hereafter section 1281.2(c).)

E. Initial Complaints Against Keenan and First Motion to Compel Arbitration

In August 2005, SFUSD filed a second amended complaint, alleging breach of fiduciary duty; breach of contract; breach of the implied covenant of good faith and fair dealing; violation of the Cartwright Act; and unjust enrichment. In support of its causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing, SFUSD alleged that it was an intended third party beneficiary of the JPA Agreements.

Keenan filed a motion for reconsideration of the courts June 2005 order, arguing that SFUSDs assertion that it was a third party beneficiary of the JPA Agreements was a fact that did not exist when it originally brought its motion to compel arbitration. Keenan further claimed that SFUSD, as an asserted third party beneficiary, was bound by the JPA Agreements. Keenan also filed a renewed motion to compel arbitration regarding all of SFUSDs claims raised in the second amended complaint. Following Keenans motions, SFUSD filed a third amended complaint, removing the claims for breach of contract and breach of the implied covenant of good faith and fair dealing, and adding San Francisco Community College District and Tuolumne Joint Powers Authority as plaintiffs.

In November 2005, the trial court denied Keenans motion for reconsideration and renewed motion to compel arbitration. The trial court rejected Keenans argument that SFUSDs allegation of third party beneficiary status in the second amended complaint constituted new facts for purposes of relief under Code of Civil Procedure section 1008. In so ruling, the court explained that allegations regarding a partys status are not admissions of fact, but rather are an articulation of a legal theory of recovery, based on factual allegations that did not substantively change from the [first amended complaint] to the [second amended complaint] (or the proposed [third amended complaint]). The court also noted that SFUSD had withdrawn its contract causes of action in its third amended complaint, and was no longer asserting a theory of recovery vis--vis the JPA Agreements. The court further denied Keenans renewed motion to compel arbitration because the denial of Keenans earlier motion to compel arbitration was based in large part on the very limited language of the arbitration provisions in the [JPA Agreements], which, of course, remains unchanged. In denying the motion for reconsideration and the motion to compel arbitration, the court explained that nothing presented in Keenans motion compelled it to change its original conclusion that the signatories to the agreements did not intend that the members of the JPAs be bound to arbitration.

II. DISCUSSION

A. Standard of Review and Applicable Law

1. Standard of Review

Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of the interpretation was introduced in the trial court. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670; see NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71 (NORCAL).) To the extent the issues on appeal present factual questions (see, e.g., Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1716 [estoppel] (Metalclad); Inglewood Teachers Assn. v. Public Employment Relations Bd. (1991) 227 Cal.App.3d 767, 780 [agency]), they require a review for substantial evidence (NORCAL, supra, 84 Cal.App.4th at p. 71). Here, however, there is no conflicting evidence, so the issues remain questions of law to which we apply de novo review. (vant Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 562; NORCAL, supra, 84 Cal.App.4th at pp. 71-72.)

2. Applicability of the Federal Arbitration Act

The Federal Arbitration Act (FAA) applies to contractual arbitration in written agreements that involve interstate or foreign commerce. (9 U.S.C. 1, 2.) Here, Keenans declarations in support of the motion to compel arbitration stated that, as part of its claims and administration services, it interacts with out-of-state insurers. (See Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1213-1214 [FAA applies to contracts relating to interstate commerce]; see also Allied-Bruce Terminex Cos. v. Dobson (1995) 513 U.S. 265, 274). Thus, inasmuch as the JPA Agreements involve interstate commerce, they are subject to the FAA. (See Basura v. U.S. Home Corp., supra, at pp. 1213-1214.) However, the 2003 Nor Cal Agreement provides that it is governed by California law. The Claims Agreement similarly contains a choice of California law provision. Choice-of-law provisions are given effect provided there is no conflict with the policies underlying federal law. (See Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 476 (Volt).) However, we point out that in most areas, the FAA and California state law overlap and the difference between the two bodies of law does not impact our analysis, unless otherwise noted. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 406-407; Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 651; Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1120-1121.)

B. The Trial Court Did Not Err in Denying the Motions to Compel Arbitration

1. General Principles

Public policy favors arbitration as an expedient and economical method of resolving disputes, thus relieving crowded civil courts. However, arbitration assumes that the parties have elected to use it as an alternative to the judicial process. [Citation]. Arbitration is consensual in nature. The fundamental assumption of arbitration is that it may be invoked as an alternative to the settlement of disputes by means other than the judicial process solely because all parties have chosen to arbitrate them. [Citations.] Even the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement. The right to arbitration depends on a contract. [Citations.] (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 244-245 (County of Contra Costa).)

Therefore, as a general rule, a nonsignatory is not bound by an arbitration agreement. (See Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763; Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990; County of Contra Costa, supra, 47 Cal.App.4th at p. 245; see also Grundstad v. Ritt (7th Cir. 1997) 106 F.3d 201, 204.) However, there are certain limited exceptions in which an arbitration agreement can be enforced against nonsignatories under traditional principles of contract and agency law. (See Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 268 (Boucher); see also County of Contra Costa, supra, 47 Cal.App.4th at pp. 242-243; E.I. DuPont de Nemours v. Rhone Poulenc Fiber (3d Cir. 2001) 269 F.3d 187, 194-195 (DuPont); Letizia v. Prudential Bache Securities, Inc. (9th Cir. 1986) 802 F.2d 1185, 1187.)

For example, a nonsignatory has been required to arbitrate a claim because a benefit was conferred on the nonsignatory as a result of a contract making the nonsignatory a third party beneficiary of the arbitration agreement. (See County of Contra Costa, supra, 47 Cal.App.4th at p. 242; MS Dealer Service Corp. v. Franklin (11th Cir. 1999) 177 F.3d 942, 947 [MS Dealer].) A second exception exists when a nonsignatory and one of the parties to the arbitration agreement have a preexisting agency relationship. (See Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 702-709; County of Contra Costa, supra, 47 Cal.App.4th at p. 242.) A third exception arises under the doctrine of equitable estoppel. (See Boucher, supra, 127 Cal.App.4th at p. 268; MS Dealer, supra, 177 F.3d at p. 947.) Keenan contends that each of these exceptions is applicable in the present case. Also, for the first time on appeal, Keenan asserts that Government Code section 6508.1 requires SFUSD to arbitrate its claims. We address each claim in turn.

2. Third Party Beneficiary

Keenan maintains that SFUSD is required to arbitrate under the JPA Agreements because SFUSD alleged it was a third party beneficiary to the agreements in its second amended complaint. We disagree.

DuPont, supra, 269 F.3d 187, is analogous to the instant case. There, as here, the defendants asserted that the plaintiff was bound to arbitrate its claims by reason of the plaintiffs assertion in the initial complaint that it was a third party beneficiary of the contract. (Id. at p. 197.) Rejecting this contention, the Third Circuit reasoned that although it was imprudent of [plaintiff] to have alleged in its initial Complaint that it was a third party beneficiary of the [a]greement, the question of its status is ultimately for us to decide under applicable law. (Ibid.)

So too here, while it may have been imprudent for SFUSD to have alleged in the second amended complaint that it was a third party beneficiary of the JPA Agreements, the question of its status remains subject to determination under applicable law.

Contrary to Keenans assertion, determination of third party beneficiary status involves more than mere allegations in a complaint. A third party beneficiary may enforce a contract made for its benefit. (Civ. Code, 1559.) However, [a] putative third partys rights under a contract are predicated upon the contracting parties intent to benefit it. [Citation.] Ascertaining this intent is a question of ordinary contract interpretation. [Citation.] Thus, [t]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement. [Citation.] (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (Hess).)

Generally, it is a question of fact whether a particular third person is an intended beneficiary of a contract. [Citation.] However, where, as here, the issue can be answered by interpreting the contract as a whole and doing so in light of the uncontradicted evidence . . . , the issue becomes one of law that we resolve independently. (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1233; see also Hayes Children Leasing Co. v. NCR Corp. (1995) 37 Cal.App.4th 775, 790.)

Here, the JPA Agreements are identical in all material respects and their language provides clear guidance. The 1998 Nor Cal Agreement contains the following arbitration provision: It is the expectation of the parties [Nor Cal and Keenan] that differences between them shall be resolved privately, professionally, and amicably. In the event the parties are unable to resolve a difference between them concerning the application or interpretation of this Agreement, the issue in dispute shall be resolved by binding arbitration as the exclusive remedy of the parties. The parties agree to abide by the then current commercial arbitration rules of the American Arbitration Association.

The 2003 Nor Cal Agreement contains the following arbitration provision: If an irreconcilable difference of opinion or claim should arise between [Nor Cal] and [Keenan] as the interpreters of any matter relating to this AGREEMENT, such matter shall be submitted to binding arbitration as the sole remedy available to both parties. Any such binding arbitration shall take place as determined by the president of [Nor Cal] and shall be conducted in accordance with the then-current rules of the American Arbitration Association. The SAFER Agreement contains a similar arbitration provision.

Applying the law of third party beneficiaries to the language of the JPA Agreements discloses no intent of the JPAs and Keenan to benefit SFUSD. The JPA Agreements provide for various general administration, underwriting administration, claims administration, and risk management services to be provided by Keenan as requested by the JPAs. Keenan fails to identify any language in the JPA Agreements that supports its assertion that SFUSD is a third party beneficiary under those contracts. Rather, Keenan relies on the generic allegations of third party beneficiary status asserted by SFUSD in its second amended complaint.

A third party beneficiary contract must either satisfy an obligation of the promisee to pay money to the beneficiary, or the circumstances indicate the promisee intends to give the beneficiary the benefit of the promised performance. (Medical Staff of Doctors Medical Center in Modesto v. Kamil (2005) 132 Cal.App.4th 679, 685-686 citing 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts,  655, pp. 594-595 [hospital medical staff did not receive payment or health care services under contract between hospital and insurer; medical staff, therefore, was not third party beneficiary].) Keenan fails to show that either of those circumstances applies here.

All that has been established is that SFUSD is a member of the JPAs that separately contracted for Keenans services. This, however, is not enough. [T]he fact that a person is directly affected by the parties conduct, or that he may have a substantial interest in a contracts enforcement, does not make him a third-party beneficiary. [Citation.] (Bridas S.A.P.I.C. v. Government of Turkmenistan (5th Cir. 2003) 345 F.3d 347, 362 (Bridas); see also Jones v. Aetna Casualty & Surety Co. (1994) 26 Cal.App.4th 1717, 1724-1725 [[t]he fact that . . . the contract, if carried out to its terms, would inure to the third partys benefit, is insufficient to entitle him or her to demand enforcement].) In other words, a benefitting third party is not necessarily a third-party beneficiary. (InterGen N.V. v. Grina (1st Cir. 2003) 344 F.3d 134, 147 (InterGen).)

The critical fact remains that the JPA Agreements neither mention nor manifest an intent to confer specific legal rights upon SFUSD. Consequently, Keenan may not compel SFUSD to arbitrate its claims.

Keenans third party beneficiary argument fails for yet another, perhaps more obvious, reason. None of SFUSDs amended claims relate to its alleged third party beneficiary status; rather, SFUSD alleges that Keenan breached its fiduciary duties as a result of its receipt of kickbacks and other improper fees, which also violate the Cartwright Act and constitute unjust enrichment. Those claims, while arguably related to the underlying JPA Agreements, do not relate to any third party beneficiary status created at the formation of the those agreements. (See DuPont, supra, 269 F.3d at p. 197; but see Comer v. Micor, Inc. (9th Cir. 2006) 436 F.3d 1098, 1102-1103 [disagreeing with DuPont to extent it applies principle not founded in contract or agency law].) To the extent Keenan relies on authority holding that a plaintiff may not avoid the consequences of allegations in a complaint by omitting such allegations in subsequent pleadings, this authority is inapposite as it relates to omissions of relevant facts within the knowledge of the pleader. (See, e.g., Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 836-837 [status as a bankrupt]; Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1109 [known party to alleged civil conspiracy]; Zappas v. King Williams Press, Inc. (1970) 10 Cal.App.3d 768, 771-772, 773-775 [unlicensed broker]; Kenworthy v. Brown (1967) 248 Cal.App.2d 298, 302 [date of contract].) As discussed, determination of third party beneficiary status is a matter of contract interpretation. (See Hess, supra, 27 Cal.4th at p. 524.)

Finally, [p]arties are presumed to be contracting for themselves only. (Bridas, supra, 345 F.3d at p. 362.) This presumption is particularly compelling, where, as here, a signatory to a contract seeks to compel a nonparty to arbitrate its claims. It is one thing to permit a nonsignatory to relinquish his right to a jury trial, but quite another to compel him to do so. (Benasra v. Marciano, supra, 92 Cal.App.4th at p. 991.) [T]he right to pursue claims in a judicial forum is a substantial right and one not lightly to be deemed waived. [Citations.] (Marsch v. Williams (1994) 23 Cal.App.4th 250, 254.) Here, there is nothing in the JPA Agreements establishing that SFUSD agreed to waive the right to pursue its claims in a judicial forum.

3. Agency

Keenan next claims that SFUSD is bound to arbitrate its claims under general principles of agency because it is a member of Nor Cal and SAFER.

An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency. (Civ. Code, 2295.) An agency is either actual or ostensible. (Id., 2298.) An agency is actual when the agent is really employed by the principal. (Id., 2299.) An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him. (Id., 2300.) The party asserting the agency has the burden of proving both the existence of the agency and the scope of the agents authority. (Inglewood Teachers Assn. v. Public Employment Relations Bd., supra, 227 Cal.App.3d at p. 780.)

In the arbitration context, a nonsignatory may be required to arbitrate its claims where it is established that the signatory to the contract has the authority to bind the nonsignatory in some manner. (See County of Contra Costa, supra, 47 Cal.App.4th at p. 243.) That is not the case here.

In County of Contra Costa, supra, 47 Cal.App.4th 237, this court reviewed California case law regarding circumstances in which nonsignatories have been held bound by reason of a preexisting relationship between a nonsignatory and a signatory. (Id. at pp. 242-243.) For example, spouses, children and heirs of patients have frequently been required to arbitrate medical malpractice claims. (Ibid.) Employees have also been required to arbitrate pursuant to agreements signed by their employers. (Id. at p. 243; Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d at pp. 702-709 [statutes granted state employers implied authority to contract for medical plan on employees behalf]; Harris v. Superior Court (1986) 188 Cal.App.3d 475, 477 [employee asserting right to arbitrate].) Likewise, the general partner of a limited partnership is bound by the arbitration agreement entered into by the partnership and a third party. (Keller Construction Co. v. Kashani (1990) 220 Cal.App.3d 222, 225-229 [].) (County of Contra Costa, supra, 47 Cal.App.4th at p. 243.)

The authority Keenan relies on is inapposite. For example, in Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, a player sued his football team and four individual agents, alleging that three of the four individuals were sued in their capacities as owners, operators and managing agents of the team, and that all four of the individuals were parties to (and had breached) the players contract with the team. The individual defendants were nonsignatories to contract between the player and the team, which included an arbitration provision. (Id. at p. 418.) However, the individual defendants, joined by the team, petitioned to compel arbitration. (Id. at pp. 409, 418.) In that context, our Supreme Court said the individual defendants were entitled to the benefit of the arbitration provisions. (Ibid.) Since SFUSD has not asked for the benefit of the JPA Agreements arbitration provisions but has, to the contrary, actively opposed arbitration, Dryer is not applicable in the instant case.

Similarly, Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266 (Boys Club), is equally unpersuasive. There, a surety executed a performance bond in favor of a youth group assuring a contractors performance of a construction contract. (Id. at p. 1270.) The performance bond incorporated by reference the construction contract between the youth group and the contractor, which contained an arbitration clause. (Ibid.) In a dispute between the youth club and the contractor, the surety argued that it was not bound to join the arbitration. (Id. at pp. 1272-1273.) Reversing the trial courts denial of the petition to compel arbitration, the appellate court held that the language in the bond incorporating the contract bound the surety to the arbitration clause, even though the surety was not a party to the original contract. (Id. at p. 1273.) In so holding, the court explained that [a]n agreement need not expressly provide for arbitration, but may do so in a secondary document which is incorporated by reference. [Citation.] (Id. at p. 1271.)

Boys Club is obviously distinguishable. Contrary to Keenans assertion, this case does not support finding an agencyrelationship between the JPAs and SFUSD. Rather, Boys Club stands for the proposition that a party may be bound by an arbitration clause in a contract between other persons that has been incorporated by reference into a partys contract. (Boys Club, supra, 6 Cal.App.4th at p. 1271.) Here, no comparable incorporation argument exists.

Finally, to the extent Keenan relies on Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d 699, that, too, is distinguishable. There, in addition to the statutes granting the state employer implied authority to contract for medical plans on behalf of its employees, the contract contained express language binding the employees to arbitration. (Id. at pp. 704-705.) Specifically, the contract stated that  [b]y electing medical and hospital coverage pursuant to this [a]greement, or accepting benefits hereunder, all [m]embers . . . agree to all terms, conditions and provisions hereof. (Id. at p. 704.) In rejecting the employees argument that she was not bound to arbitrate her medical malpractice claims, the court emphasized that [t]he arbitration agreement . . . bears equally on Kaiser and the members. (Id. at p. 711.) Here, as correctly noted by the trial court, nothing in the language of the JPA Agreements demonstrates the intent of the signatories to bind the members of the JPAs in a similar manner.

In sum, nothing in SFUSDs relationship with the JPAs or the JPA Agreements, subjects SFUSD to arbitration agreements signed by Nor Cal and SAFER.

4. Equitable Estoppel

Keenan claims that the doctrine of equitable estoppel requires SFUSD to arbitrate its claims. In a related argument, Keenan, citing Civil Code section 1589, contends that SFUSD must arbitrate its claims because SFUSD accepted the benefits of the JPA Agreements and cannot avoid the burden of those agreements.^[2]

Civil Code section 1589 provides in relevant part, 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. Although not cited by Keenan, Civil Code section 3521 similarly provides, He who takes the benefit must bear the burden.

Equitable estoppel precludes a party from asserting rights he otherwise would have had against another when his own conduct renders assertion of those rights contrary to equity. ([Inter. Paper v. Schwabedissen Maschinen & Anlagen ([4th Cir. 2000]) 206 F.3d [411,] 417-418 [International Paper].) In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him. (Id. at p. 418; NORCAL[,supra,] 84 Cal.App.4th [at p.] 81 [].) (Metalclad, supra, 109 Cal.App.4th at p. 1713.) Restated, the doctrine of estoppel prevents a party from having it both ways. [Citation.] (Washington Mut. Finance Group, LLC v. Bailey (5th Cir. 2004) 364 F.3d 260, 268.)

The federal circuits that have considered the doctrine of equitable estoppel have uniformly accepted it, in appropriate factual circumstances, as a basis for compelling signatories to a contract containing an arbitration clause to arbitrate their claims against nonsignatories. [Citations.] (Metalclad, supra, 109 Cal.App.4th at p. 1714; see MS Dealer, supra, 177 F.3d at p. 947; Grigson v. Creative Artists Agency (5th Cir. 2000) 210 F.3d 524, 527.) [U]nder both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations. [Citations.] (Boucher, supra, 127 Cal.App.4th at pp. 271-272.)

Although federal courts generally have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed, [citation], they have been hesitant to estop a nonsignatory seeking to avoid arbitration. (InterGen, supra, 344 F.3d at pp. 145-146, second italics added.) In such instances, estoppel has been limited to cases [that] involve non-signatories who, during the life of the contract, have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract. [(DuPont, supra, 269 F.3d at p.  200]; accordAm. Bureau of Shipping v. Tencara Shipyard S.P.A. [(2d Cir. 1999)] 170 F.3d 349, 353 [] (holding a nonsignatory bound by a contract under which it received the direct benefits of lower insurance rates and the ability to sail under the French Flag). (InterGen, supra, 344 F.3d at p. 146.) Under federal decisional law, [a] nonsignatory is estopped from refusing to comply with an arbitration clause when it receives a direct benefit from a contract containing an arbitration clause. [Citations.] (International Paper, supra, 206 F.3d at p. 418.) Direct benefits estoppel applies when a nonsignatory knowingly exploits the agreement containing the arbitration clause. [Citations.] (Bridas, supra, 345 F.3d at pp. 361-362.)

For example in International Paper, supra, 206 F.3d 411, the Fourth Circuit held that a nonsignatory was estopped from avoiding arbitration where it sued to enforce warranty provisions in a contract. (Id. at pp. 413-414, 418.) There, a buyer of an industrial saw brought suit against the manufacturer of the saw on the basis of a contract between the manufacturer and the distributor of the saw, which contained an arbitration clause. (Id. at pp. 413-414.) The court concluded that the buyer cannot sue to enforce the guarantees and warranties of the distributor-manufacturer contract without complying with its arbitration provision . . . . (Ibid.) In so holding, the court reasoned: The [distributor-manufacturer] contract provides part of the factual foundation for every claim asserted by [buyer] against [manufacturer]. In its amended complaint, [buyer] alleges that [manufacturer] failed to honor the warranties in the [distributor-manufacturer] contract, and it seeks damages, revocation, and rejection in accordance with that contract. [Buyers] entire case hinges on its asserted rights under the [distributor-manufacturer] contract; it cannot seek to enforce those contractual rights and avoid the contracts requirement that any dispute arising out of the contract be arbitrated. (Id. at p. 418, italics added.)

Primarily relying on International Paper, supra, 206 F.3d 411, Keenan argues that SFUSD is bound by the arbitration clauses in the JPA Agreements because SFUSD is knowingly relying on those very same agreements to plead its case. However, beyond asserting that SFUSD alleged it is a third-party beneficiary of the JPA Agreements and alleged the JPA Agreements create fiduciary duties that are owed directly from Keenan to SFUSD, Keenan does not provide any argument supporting the application of estoppel or Civil Code section 1589 in this case.

In the third amended complaint, SFUSD asserts causes of action for breach of fiduciary duty, violations of the Cartwright Act, and unjust enrichment. SFUSDs breach of fiduciary duty claim against Keenan, while factually related to the JPA Agreements, are not inextricably intertwined with those agreements. Rather, the third amended complaint alleges that Keenan, as an insurance broker, has certain fiduciary and other duties, including the duties of due care, candor and loyalty, which arise under California law.

Moreover, SFUSD has not inequitably made use of or sought enforcement of the JPA Agreements while denying the applicability of the arbitration clauses of those agreements. That SFUSD may have initially alleged it was a third party beneficiary under the JPA Agreements is insufficient, standing alone, to justify the application of equitable estoppel, especially since there is no evidence that the contracting parties intended to benefit SFUSD.

In sum, Keenan has failed to establish that SFUSDs claims are intertwined with the JPA Agreements or that SFUSD has exploited those agreements to the degree that requires a finding of a direct benefit estoppel. (See Bridas, supra, 345 F.3d at pp. 361-362.) Accordingly, we conclude that neither the doctrine of equitable estoppel nor Civil Code section 1589 requires SFUSD to arbitrate its claims against Keenan.

5. Government Code Section 6508.1

Keenan argues that SFUSD is bound to the arbitration provisions by Government Code section 6508.1 by virtue of its membership in the JPAs. Although Keenan did not suggest this theory to the trial court, it presents only a question of law and is therefore cognizable in this appeal. (Sanchez v. Truck Ins. Exchange (1994) 21 Cal.App.4th 1778, 1787.)

Government Code section 6508.1 is part of the Joint Exercise of Powers Act (see Gov. Code,  6500 et seq.), which authorizes public entities to form JPAs, and provides as follows: If the agency is not one or more of the parties to the agreement but is a public entity, commission, or board constituted pursuant to the agreement, the debts, liabilities, and obligations of the agency shall be debts, liabilities, and obligations of the parties to the agreement, unless the agreement specifies otherwise. []A party to the agreement may separately contract for, or assume responsibility for, specific debts, liabilities, or obligations of the agency. (Italics added.)

Citing Tucker Land Co. v. State of California (2001) 94 Cal.App.4th 1191, 1198 (Tucker), Keenan argues that Government Code section 6508.1 imposes liability on SFUSD to arbitrate its claims under the JPA Agreements. Keenans reliance on Tucker is misplaced.

Tucker involved a declaratory relief action in which a land company sought a declaration that the constituent members of a joint powers agency were jointly and individually liable for the obligations of the agency to the plaintiff on an underlying judgment in the plaintiffs favor; that the State of California was liable to the plaintiff because all constituent members were state agencies; and that the constituent members were liable as alter egos of the joint powers agency. (Tucker, supra, 94 Cal.App.4th at pp. 1194-1995.) The appellate court affirmed the order granting the defendants motion for summary judgment. (Id. at pp. 1193, 1196.) In so holding, the court explained that the joint powers agreement specified that its constituent members were not liable for the contractual obligations of the joint powers agency, and did not provide for liability other than that borne by the joint powers agency itself. (Id. at p. 1193.) The court further held that Government Code section 6508.1, which sets forth the responsibility of constituent agencies for the obligations of a joint powers agency, means what it plainly says: that the debts of the joint powers agency are the debts of its constituent entities unless the agreement specifies otherwise. (Tucker, supra, 94 Cal.App.4th at pp. 1198, 1200-1201.) There, the agreement specified otherwise, i.e., that the constituent entities would not be responsible for the debts of the JPA. (Id. at p. 1201.) It was further established beyond dispute that there was no liability on the part of the constituent entities as alter egos. (Id. at pp. 1201-1202.)

Tucker is factually distinguishable from the instant case. There, unlike here, the issue was not whether a nonsignatory member could be bound to arbitrate its claims under separate contracts between the JPAs and another party. Rather, the issue was whether constituent members of a JPA could be liable for the contractual obligations of the JPA, where the joint exercise of powers agreement specified that the members were not liable for such debts. (Tucker, 94 Cal.App.4th at pp. 1193-1194 & fn. 1.) Even assuming arguendo, that the joint exercise of powers agreement between SFUSD and the JPAs^[3]do not contain any language opting out of Government Code section 6508.1, Keenan provides no authority, nor has any been found by this court, which supports the proposition that section 6508.1 grants JPAs the authority (express or implied) to bind its members to arbitration agreements in which they were not signatories. We decline to do so here.

C. The Trial Court Did Not Err in Applying Code of Civil Procedure Section 1281.2(c)

The trial court ordered that SFUSDs claims that have arisen solely in connection with Keenans services under the Claims Agreement for the July 1, 2004 to June 30, 2005 term be severed from its remaining claims and submitted to arbitration. However, pursuant to Code of Civil Procedure section 1281.2(c), the trial court stayed the arbitration pending the resolution of SFUSDs nonarbitrable claims. Keenan argues the trial court erred by applying section 1281.2(c) because the FAA (9 U.S.C.  3) and California law (Code Civ. Proc.,  1281.4) both mandate a stay of the litigation pending completion of arbitration. We disagree.

Section 3 of the FAA provides, If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . . (9 U.S.C.  3.)

However, where, as here, arbitration under a contract containing a choice of California law provision has been ordered,^[4]section 1281.2(c) may be applied. Section 1281.2 provides, On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [] . . . [] (c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. ( 1281.2(c).) In this latter circumstance, the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding. (Ibid.) Case law has recognized that section 1281.2(c) does not contradict the FAAs policy of favoring arbitration.

In Volt, supra, 489 U.S. 468, the United States Supreme Court upheld section 1281.2(c)s application to an arbitration provision governed by the FAA. The contract at issue, a construction agreement for work to be performed in California, contained a clause applying the law of the place where the Project is located. (Volt, supra, 489 U.S. at p. 470.) The high court rejected a preemption claim, declaring the FAA do[es] not prevent application of [section 1281.2(c)] to stay arbitration where, as here, the parties have agreed to arbitrate in accordance with California law. (Volt, supra, 489 U.S. at p. 477.) It also acknowledged California has taken the lead in fashioning a legislative response governing the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate (id. at p. 476, fn. 5), and held, [i]nterpreting a choice-of-law clause to make applicable state rules governing the conduct of arbitrationrules which are manifestly designed to encourage resort to the arbitral processsimply does not offend the rule of liberal construction . . . , nor does it offend any other policy embodied in the FAA (id. at p. 476, fn. omitted). In so holding, the court explained, [w]here, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the [FAA] would otherwise permit it to go forward. (Id. at p. 479.)

California cases also support this conclusion. In Mount Diablo Medical Center v. Health Net of California, Inc. (2002) 101 Cal.App.4th 711, 726-727 (Mount Diablo), another division of this court affirmed the use of section 1281.2(c) to deny a motion seeking to compel arbitration under an agreement governed by the FAA. There, the choice-of-law clause provided that the validity, construction, interpretation and enforcement of this [a]greement shall be governed by California law. (Mount Diablo, supra, 101 Cal.App.4th at p. 722.) The court determined that [t]he choice-of-law provision in the present case may be generic in the sense that it does not mention arbitration or any other specific issue that might become a subject of controversy, but it is nonetheless broad, unqualified and all-encompassing. (Ibid.) In affirming, the court declared that [s]ection 1281.2(c) is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration, but is part of Californias statutory scheme designed to enforce the parties arbitration agreements, as the FAA requires. (Mount Diablo, supra, 101 Cal.App.4th at p. 726.)

Recently, the California Supreme Court approved this interpretation of section 1281.2(c) in Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 380, 387 (Cronus). There, the choice-of-law provision provided: This agreement shall be construed and enforced in accordance with and governed by the laws of the State of California, without giving effect to the conflict of laws provisions thereof. (Ibid.) Also, the parties seemed to agree that the broad choice-of-law provision generally incorporates California law, including the California Arbitration Act . . . [citation], of which section 1281.2(c) is a part. (Ibid.) The court held that section 1281.2(c) is not a special rule limiting the authority of arbitrators, but rather an evenhanded law that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law amongst interrelated parties. (Id. at p. 393, italics omitted.) Quoting Mount Diablo, our Supreme Court explained that section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement and grants the court discretion not to enforce the arbitration agreement under such circumstancesin order to avoid potential inconsistency in outcome as well as duplication of effort . . . . (Ibid.)

Keenan argues that Cronus and MountDiablo do not apply because the contracts in those cases specifically provided that the agreements would be enforced under California law. Here, the Claims Agreement provides that it shall be governed by and interpreted in accordance with the laws of the State of California. Relying on Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 62 (Mastrobuono), Keenan argues that generic choice-of-law provisions do not incorporate state laws regarding arbitration. The agreement in Mastrobuono provided only that it shall be governed by the laws of the State of New York. (Mastrobuono, supra, 514 U.S. at p. 53.) The circumstances in Mastrobuono were very different from those involved in the present case. The issue there was whether to apply New York decisional law, which permitted punitive damages to be awarded by courts but not by arbitrators (the Garrity^[[5]]rule). (Mount Diablo, supra, 101 Cal.App.4th at p. 719.) The petitioners argued that the FAA preempted the Garrity rule, while the respondents relied on Volt, arguing that the choice-of-law provision incorporated state arbitration rules, including the Garrity rule. The high court responded: At most, the choice-of-law clause introduces an ambiguity into an arbitration agreement that would otherwise allow punitive damage awards. As we pointed out in Volt, when a court interprets such provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration. [Citations.] (Mastrobuono,supra, 514 U.S at p. 62.) We think the best way to harmonize the choice-of-law provision with the arbitration provision is to read the laws of the State of New York to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators. . . . (Id. at pp. 63-64, italics added.) (Cronus, supra, 35 Cal.4th at pp. 392-393.)

However, section 1281.2(c), unlike the New York rule involved in Mastrobuono, does not involve a special rule limiting the authority of arbitrators. (Cronus, supra, 35 Cal.4th at p. 393; Mount Diablo, supra, 101 Cal.App.4th at p. 726.) Rather, it is part of Californias statutory scheme designed to enforce the parties arbitration agreements, as the FAA requires. Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement. The California provision giving the court discretion not to enforce the arbitration agreement under such circumstancesin order to avoid potential inconsistency in outcome as well as duplication of effortdoes not contravene the letter or the spirit of the FAA. That was the explicit holding in Volt and nothing in Mastrobuono casts doubt on that conclusion. (Mount Diablo, supra, 101 Cal.App.4th at p. 726.) (Cronus, supra, 35 Cal.4th at p. 393.) Although the language in the Claims Agreement differs from the contracts in Cronus and MountDiablo, we find the underlying rationale of applying section 1281.2(c) is, nonetheless, applicable here. In other words, common issues of fact and law will be resolved consistently, and only once. (Mount Diablo, supra, 101 Cal.App.4th at p. 727.)

We are similarly unpersuaded by Keenans contention that section 1281.2(c) has not been triggered because SFUSDs claims against Keenan and its claims against the other defendants (Marsh and Driver) do not arise out of the same transaction and involve no overlap of claims. The underlying action challenges industry-wide kickback practices alleged to be followed by all of the defendants,^[6]including Keenan, vis--vis their dealings with the respective public entities plaintiffs. The trial court did not abuse its discretion in applying section 1281.2(c) under these circumstances, as it is possible that arbitration could lead to conflicting rulings in this multiparty action. (Code Civ. Proc.,  1281.2(c); see also Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101-102; Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63, 75.)

Finally, contrary to Keenans contention, Code of Civil Procedure section 1281.4 does not mandate a stay of the instant action. Where a matter has been ordered to arbitration, the court in which such action or proceeding is pending shall, upon motion of a party . . . , stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate . . . . (Code Civ. Proc.,  1281.4.) [O]ne of the purposes of this statute is to promote the expeditious and efficient settlement of disputes and eliminate multiplicity of actions. [Citations.] (McMillin Development, Inc. v. Home Buyers Warranty (1998) 68 Cal.App.4th 896, 910-911; see also Marcus v. Superior Court (1977) 75 Cal.App.3d 204, 211-212.) Here, however, the determination of SFUSDs nonarbitrable claims against Keenan may make the arbitration unnecessary. In other words, staying the instant action pending the resolution of the arbitrable claims could result in the type of multiplicity of actions Code of Civil Procedure section 1281.4 is intended to prevent. Accordingly, the trial court did not abuse its discretion in applying section 1281.2(c).

D. The Trial Court Did Not Err in Denying the Motion for Reconsideration

Finally, Keenan argues that the trial court abused its discretion in denying its motion for reconsideration.

Code of Civil Procedure section 1008, subdivision (a), provides that a party may seek reconsideration of an order based upon new or different facts, circumstances, or law . . . . Keenan argues that SFUSDs allegations of third party beneficiary status in the second amended complaint constituted new facts for purposes of Code of Civil Procedure section 1008. This contention is without merit.

As discussed, the determination of a partys status as a third party beneficiary is a matter of contract interpretation. (Hess, supra, 27 Cal.4th at p. 524.) While the resolution of this legal question typically involves a question of fact, it, nonetheless, remains a legal inquiry for the court. (See Prouty v. Gores Technology Group, supra, 121 Cal.App.4th at p. 1233; see also DuPont, supra, 269 F.3d at p. 197; Chacksfield v. L. A. County Flood etc. Dist. (1966) 245 Cal.App.2d 193, 194-195 [no abuse of discretion in sustaining demurrer without leave to amend where cross-complaint alleged legal conclusion regarding third party beneficiary status].) Accordingly, SFUSDs assertions in the second amended complaint that it was a third party beneficiary of the JPA Agreements did not constitute new facts justifying the granting of Keenans motion for reconsideration. Moreover, the basis of the trial courts denial of Keenans prior motion to compel arbitration was based in large part on the very limited language of the arbitration provisions in the [JPA Agreements], which, of course, remain[ed] unchanged. The trial court acted well within in its discretion in denying Keenans request for reconsideration.

III. DISPOSITION

The orders denying Keenans motion to compel arbitration and motion for reconsideration are affirmed. SFUSD is entitled to its costs on appeal.

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Reardon, J.

We concur:

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Ruvolo, P.J.

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Rivera, J.

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Analysis and review provided by La Mesa Property line Lawyers.

^[1]A JPA is a legally independent entity created by a joint exercise of powers agreement pursuant to Government Code section 6500 et seq.

^[2]Keenan raises this argument for the first time in its reply brief. Normally, contentions raised for the first time in a reply brief are ignored. (See, e.g., Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894-895, fn. 10.) However, this argument relates to Keenans equitable estoppel argument and presents a legal question on undisputed facts. (See Barton v. New United Motor Manufacturing, Inc. (1996) 43 Cal.App.4th 1200, 1207; see also Metalclad, supra, 109 Cal.App.4th at p. 1716.) As such, we consider this related argument on appeal.

^[3]Keenan incorrectly points to the language of the JPA Agreements, rather than the language of the joint exercise of powers agreements in which SFUSD agreed to become a member of Nor Cal and SAFER. Additionally, the record before us contains only the joint exercise of powers agreement between Nor Cal and SFUSD.

^[4]Keenan mistakenly relies on the choice-of-law provisions