Siljan v. Filet Menu

Filed 8/29/07 Siljan v. Filet Menu CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from an order of the Superior Court of Los Angeles County, Teresa Sanchez-Gordon, Judge. Reversed.

Leonard, Dicker & Schreiber and Kevin S. Dicker for Plaintiffs and Appellants.

Barry & Krueger and Paul M. Krueger; Edward J. Horowitz; Law Office of Bruce Adelstein and Bruce Adelstein for Defendant and Respondent.

I. Introduction

Plaintiffs, Siljan Inc., Glorias Pupuseria and Sylvia Martinez, appeal from a judgment confirming an arbitration award in favor of defendant, Filet Menu, Inc., in the amount of $990,226.57. Plaintiffs argue there was no enforceable agreement to arbitrate the dispute and the award should therefore have been vacated. We agree and reverse the judgment.

II. Background

Plaintiffs filed their petition to vacate award and dismiss proceedings on April 10, 2006. The petition alleged that, on November 30, 1994, the parties entered into an agreement whereby plaintiffs would purchase napkins and placemats for an agreed price from defendant. In connection with the agreement, plaintiffs executed a document entitled Credit Application and Agreement; the second paragraph of which provides: This contract is to be performed in the County of Los Angeles, State of California, which shall have jurisdiction and venue over any controversy that may arise between the parties hereto. In any dispute between the parties we agree to pay attorney and collection expenses whether the matter proceeds to court (or arbitration at FILET MENUs discretion according to the rules of the American Arbitration Association) or not. We agree to notify FILET MENU immediately of any change of ownership and the names and address of the new principles.

The petition further alleged that a dispute arose between the parties as to whether plaintiffs had breached the purchase agreement by failing to pay for products delivered by defendant. In November 2003, defendant invoked the jurisdiction of the American Arbitration Association to resolve the controversy. Plaintiffs denied that there was an agreement to arbitrate and asserted that the language in the credit application was merely an attorney fee provision. The American Arbitration Association rendered an award on December 20, 2005. Plaintiffs requested the trial court to vacate the award and dismiss the proceedings.

In support of the petition, plaintiffs argued the contractual language does not set forth an arbitration agreement but only provides for payment of attorney fees. According to plaintiffs, to the extent defendant purported to create an arbitration agreement, it is unenforceable because: defendant drafted an ambiguous agreement; the agreement is located in a preprinted form contract in a minuscule font size; Ms. Martinez did not initial the paragraph containing the arbitration language; and the language is not conspicuously set apart from the rest of the form. Plaintiffs further argued that the clause was unenforceable in that it purported to give defendant the unilateral right to arbitrate the matter.

In response to plaintiffs petition, defendant requested that the arbitration award be confirmed. Defendant opposed the petition to vacate on the ground that Ms. Martinez executed an agreement which contained an arbitration clause. Defendant contended: Ms. Martinez had, in fact, initialed the arbitration clause; the contract was not unconscionable even if unilateral because defendant is not in a superior bargaining position to plaintiffs who are savvy in business; plaintiffs had produced no evidence to support their petition; and the arbitration clause is not too vague or inconspicuous to be enforceable. Defendant urged the court to determine that all parties have the same right to arbitrate. Defendant also argued that plaintiffs waived their right to challenge the arbitration clause. According to defendant, a waiver occurred because: plaintiffs did not object to the arbitrators jurisdiction; plaintiffs participated in most aspects of the arbitration process such as selection of arbitrator, payment of fees, and attendance of hearings; the arbitrator gave plaintiffs an opportunity to file a motion to challenge the arbitrability of the dispute; and plaintiffs did not file a motion to challenge whether the matter should be arbitrated. Further, defendant argued that plaintiffs did not explain their failure to appear at the arbitration hearing.

Defendant filed the declaration of Paul M. Krueger. Mr. Krueger declared that he was defendants attorney. Two years before the arbitration was initiated, Mr. Krueger sent a letter to plaintiffs and their prior counsel. Mr. Krueger explained that defendant was entitled to arbitration based on the November 30, 1994 credit application and agreement. Mr. Krueger was unaware of any reservations or questions regarding the meaning of the arbitration clause. On November 9, 2001, defendant filed an arbitration demand with the American Arbitration Association. Plaintiffs participated in the arbitration by: picking the arbitrator; making payments toward the arbitration expenses; communicating with the arbitrator about schedules; participating in preliminary hearings; and appearing at the first evidentiary hearing which was continued.

Mr. Krueger further declared that, on August 14, 2002, a telephonic preliminary hearing was held with counsel for both parties and the arbitrator, Thomas L. Flattery. Mr. Flattery set a briefing schedule for any challenges to the arbitrability of the dispute. No motion was filed within the time schedule or at any other time. Plaintiffs did not appear at the hearings on November 14 and 17, 2005 hearings where evidence was entered. Plaintiffs did not appear at the hearing or explain why they did not appear.

In reply to defendants opposition, plaintiffs argued that the clause was too ambiguous to constitute an enforceable arbitration clause. Plaintiffs argued that the language was contained in a parenthetical clause as part of an incomplete sentence which is modifying an attorney fee and cost provision. The clause, which merely contains an attorney fee and cost provision, cannot be read to deprive plaintiffs of a right to jury trial. Because the clause is at best ambiguous, it must be construed against defendant.

On May 25, 2006, the trial court entered a minute order denying plaintiffs petition to vacate the arbitration award. On June 19, 2006, the trial court entered a judgment confirming the arbitration award. Plaintiffs filed a notice of appeal from the judgment confirming the arbitration award on August 21, 2006.

III. Discussion

A. The Scope of the Appeal

Defendant initially claims that plaintiffs failed to file a timely notice of appeal from the order denying plaintiffs petition to vacate the arbitration award. Defendant reasons plaintiffs did not appeal from the May 25, 2006 order but only the judgment confirming the arbitration award. Code of Civil Procedure^[1]section 1294 provides that the following arbitration orders are appealable: (a) An order dismissing or denying a petition to compel arbitration. []  (b) An order dismissing a petition to confirm, correct or vacate an award. []  (c) An order vacating an award unless a rehearing in arbitration is ordered. []  (d) A judgment entered pursuant to this title. []  (e) A special order after final judgment. Section 1287.4 provides: If an award is confirmed, judgment shall be entered in conformity therewith. The judgment so entered has the same force and effect as, and is subject to all the provisions of law relating to, a judgment in a civil action of the same jurisdictional classification; and it may be enforced like any other judgment of the court in which it is entered, in an action of the same jurisdictional classification. Section 1294.2 provides: The appeal shall be taken in the same manner as an appeal from an order or judgment in a civil action. Upon an appeal from any order or judgment under this title, the court may review the decision and any intermediate ruling, proceeding, order or decision which involves the merits or necessarily affects the order or judgment appealed from, or which substantially affects the rights of a party. . . . The provisions of this section do not authorize the court to review any decision or order from which an appeal might have been taken. An order denying a petition to vacate an award is not included in this list of appealable orders in section 1294. Rather, an order denying a petition to vacate an arbitration award is an intermediate ruling and not directly appealable; but it may be reviewed from a judgment confirming an award. ( 1287.4, 1294, 1294.2; Mid-Wilshire Associates v. OLeary (1992) 7 Cal.App.4th 1450, 1454; see also  906; Cummings v. Future Nissan (2005) 128 Cal.App.4th 321, 326-327; Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 649-650.) As such, the appeal from the order denying the petition to vacate was not untimely.

Moreover, we disagree with defendant that the notice of appeal is insufficient to establish that plaintiffs sought review of the order denying the petition to vacate the award. The notice of appeal refers to the Judgment entered on June 19, 2006 which in turn specifically adverts to the May 25, 2006 hearing on the petition to vacate. The June 19, 2006 judgment confirming the arbitration award provides: JUDGMENT CONFIRMING ABITRATION AWARD []  The Petition to Vacate Award of Arbitrator and to Dismiss Proceedings and the Response to Petition having came on regularly for hearing before undersigned on May 25, 2006, upon notice duly and regularly given. [Plaintiffs] appearing by their counsel, Jose R. Paz, Esq., and [defendant], appearing by its counsel, Paul M. Krueger, Esq. Evidence having been introduced and the matter submitted. Good cause appearing therefore. [] IT IS Ordered that the Award of the Arbitrator dated December 28, 2005, be and the same is confirmed. [Plaintiffs] shall jointly and severally pay to [defendant] $990,226.57 with interest thereon in the amount of $19,180.91 for a total of $1,009,407.48. [Defendant] is also entitled to costs of suit herein in the amount of $372.54 for a total judgment of $1,009,780.02. Under the circumstances, the notice of appeal is sufficient to obtain review of the intermediate order denying the petition to vacate when plaintiffs appealed from the judgment confirming the arbitration award. ( 1287.4, 1294, 1294.2; Abramson v. Juniper Networks, Inc., supra, 115 Cal.App.4th at pp. 649-650; Mid-Wilshire Associates v. OLeary, supra, 7 Cal.App.4th at p. 1454.)

B. The Forfeiture Claim

Plaintiffs argue the trial court erred in refusing to vacate the arbitration award and dismiss the proceedings because there was no valid agreement to arbitrate but merely an agreement to pay attorney fees. As an alternative argument, plaintiffs assert even if there was an arbitration agreement it would be unenforceable because it is unconscionable. At the outset, defendant claims that plaintiffs forfeited these arguments (validity and unconscionability) by failing to assert them either in arbitration or in the trial court prior to completion of the arbitration. Defendant argues a forfeiture occurred in this case because plaintiffs: initially participated in the arbitration proceeding by paying fees and selecting an arbitrator; raised the arbitrability issue in the arbitration proceeding; failed to submit briefs on the issue after the arbitrator indicated that he would decide the issue; and simply stopped participating in the proceedings. The Court of Appeal has held, Normally, . . . a party who questions the validity of the arbitration agreement may not proceed with arbitration and preserve the issue for later consideration by the court after being unsuccessful in the arbitration. (Bayscene Resident Negotiators v. Bayscene Mobilehome Park (1993) 15 Cal.App.4th 119, 129 citing Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 29-31; see also Cummings v. Future Nissan, supra, 128 Cal.App.4th at p. 328; Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1372-1373; Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034, 1040.)

However, there has been no waiver of the right to object to the arbitration proceeding because the evidence presented by defendant establishes that plaintiffs did not submit to arbitration on the merits. (Alternative Systems, Inc. v. Carey, supra, 67 Cal.App.4th at pp. 1040-1041; Nagrampa v. Mailcoup, Inc. (9th Cir. 2006) 469 F.3d 1257, 1277-1280 citing First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 946 and Textile Unlimited, Inc. v. A.. BMH & Co., Inc. (9th Cir. 2001) 240 F.3d 781, 788.) Rather, plaintiffs initially objected to arbitrability, never withdrew the objection, and then refused to arbitrate the merits of the defendants claims. (Alternative Systems, Inc. v. Carey, supra, 67 Cal.App.4th at pp. 1040-1041; Nagrampa v. Mailcoup, Inc., supra, 469 F.3d at pp. 1277-1280.) Moreover, the only evidence of plaintiffs participation is in regard to procedural matters, which does not itself establish a waiver to the arbitrability of the dispute after a party has objected to the process. (Ibid.; compare Cummings v. Future Nissan, supra, 128 Cal.App.4th at p. 328 [knowingly participating in arbitration without disclosing a basis for finding arbitration process invalid results in forfeiture because party with a must do so at the outset, and if trial court compels arbitration, review may be sought after award is confirmed].) Accordingly, no forfeiture occurred in this case as to the issue of whether an agreement to arbitrate exists.

C. The Validity of the Agreement

Turning to the merits of the appeal, at issue here is whether the language in the second paragraph of the document entitled Credit Application And Agreement can be interpreted to bestow authority on the arbitrator to arbitrate the controversy in this matter. As noted, the arbitration clause states: This contract is to be performed in the County of Los Angeles, State of California, which shall have jurisdiction and venue over any controversy that may arise between the parties hereto. In any dispute between the parties we agree to pay attorney and collection expenses whether the matter proceeds to court (or arbitration at FILET MENUs discretion according to the rules of the American Arbitration Association) or not. We agree to notify FILET MENU immediately of any change of ownership and the names and address of the new principles. Plaintiffs argue the language does not constitute an agreement to arbitrate. Rather, the challenged phrase in plaintiffs view constitutes an agreement to pay attorney fees. Defendant counters that, although the grammar in this sentence could have been drafted better, the meaning of the language is that the parties will arbitrate a dispute at defendants option under the rules of the American Arbitration Association.

The agreement states any controversy between the parties is within the jurisdiction of the laws of the State of California. As a result, the United States Arbitration Act, title 9 United States Code section 1 et seq. does not apply to this appeal. (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470; accord Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 380; Larian v. Larian (2004) 123 Cal.App.4th 751, 759; Mount Diablo Medical Center v. Health Net of California, Inc. (2002) 101 Cal.App.4th 711, 714-726.) Section 1281 provides, A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract. Any doubts as to whether an arbitration clause applies to a particular dispute should be resolved in favor of requiring the matter be arbitrated. (Viannav.Doctors Management Co. (1994) 27 Cal.App.4th 1186, 1189; United Transportation Unionv.Southern Cal. Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 808.) However, the right to arbitration depends upon the existence of an agreement to arbitrate between the parties. (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 245; Marsch v. Williams (1994) 23 Cal.App.4th 250, 253; Boys Club of San Fernando Valley v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271; Blatt v. Farley (1990) 226 Cal.App.3d 621, 625.) There is a strong public policy in favor of arbitration. But there is no public policy favoring arbitration of disputes which parties have not agreed to arbitrate. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9; Freeman v. State Farm Mut. Auto Ins. Co. (1975) 14 Cal.3d 473, 481; Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1527-1528; Cione v. Foresters Equity Services, Inc. (1997) 58 Cal.App.4th 625, 634; Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.)

Before a party may be compelled to arbitrate a claim, the party asserting the right to arbitrate has the burden of proving the existence of a valid arbitration agreement. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761.) In this case, the parties presented no extrinsic evidence on the determination of validity of an arbitration provision; thus, like the interpretation of any contractual provision, the question is subject to de novo review. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 771; Abramson v. Juniper Networks, Inc., supra, 115 Cal.App.4th at p. 650; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 172; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1527.)

Citing section 1286.2, subdivision (a)(4)^[2], plaintiffs seek to vacate the award on the ground the arbitrator exceeded his powers because there was no enforceable arbitration agreement. An arbitration award can be vacated or corrected if the arbitrator exceeded his or her powers. ( 1286.2, subd. (a)(4), 1286.6, subd. (b); Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 366.) The question of whether an arbitrator has exceeded his or her powers is a question of law, which is reviewed de novo on appeal. (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 945; Creative Plastering Inc. v. Hedley Builders, Inc. (1993) 19 Cal.App.4th 1662, 1666; Southern Cal. Rapid Transit Dist. v. United Transportation Union (1992) 5 Cal.App.4th 416, 423.)

The question here is whether plaintiffs established that the agreement cannot be interpreted to require arbitration of the dispute in this case. Gravillis v. Coldwell Banker Residential Brokerage Co.supra, 143 Cal.App.4th at page 771 set forth the standard for resolving such an issue as follows: Arbitration is . . . a matter of contract, and the parties may freely delineate the area of its application. The courts role . . . must be strictly limited to a determination of whether the party resisting arbitration agreed to arbitrate. A heavy presumption weighs the scales in favor of arbitrability; an order directing arbitration should be granted unless it may be said with positive assurance that the arbitration [provision] is not susceptible of an interpretation that covers the asserted dispute. (OMalley v. Wilshire Oil Co. (1963) 59 Cal.2d 482, 490-491; accord AT & T Technologies v. Communications Workers (1986) 475 U.S. 643, 650-652.) . . . []  The burden is on the party opposing arbitration to show the agreement cannot be interpreted to apply to the dispute . . . . Whether a contract is reasonably susceptible to a partys interpretation can be determined from the language of the contract itself . . . . The policy in favor of arbitration does not apply when the contract cannot be interpreted in favor of arbitration. There is no policy in favor of arbitrating a dispute the parties did not agree to arbitrate. (Balandran v. Labor Ready, Inc.[, supra,] 124 Cal.App.4th [ at pp.] 1527-1528.) (See also Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406.)

The questionable language provides, In any dispute between the parties we agree to pay attorney and collection expenses whether the matter proceeds to court (or arbitration at [defendants] discretion according to the rules of the American Arbitration Association). The reference to arbitration is contained as a parenthetical phrase in the middle of a sentence stating that the credit applicant agreed to pay attorney and collection fees. This is not a clear agreement to arbitrate any controversy arising between the parties. Rather, as drafted, the meaning of the clause is that plaintiffs agree to pay attorney fees in any dispute whether the dispute: proceeds to court; proceeds to arbitration at defendants election; or does not go to court or arbitration. The clause mentioning arbitration, does not, however, bind any party to submit any controversy to arbitration. Thus, there is no agreement to waive the right to a court trial of controversies between the parties. (Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 789; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 805; Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1129.) As noted above, courts are bound to liberally construe arbitration clauses in favor of arbitration even in doubtful cases. (Vianna v. Doctors Management Co., supra, 27 Cal.App.4th at p. 1189; United Transportation Union v. Southern Cal. Rapid Transit Dist., supra, 7 Cal.App.4th at p. 808.) Nevertheless, in the absence of a clear and unequivocal language, there is no liberal policy allowing courts to infer waiver of the constitutional right to a jury trial. (Cal. Const., art. I,  16; Wolschlager v. Fidelity National Title Ins. Co., supra, 111 Cal.App.4th at p. 789; Badie v. Bank of America, supra, 67 Cal.App.4th at p. 805; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 643; Titan Group, Inc. v. Sonoma Valley County Sanitation Dist., supra, 164 Cal.App.3d at p. 1129.) In short, there was no agreement between the parties to arbitrate the controversy in this case. The petition to vacate should have been granted.

D. Motion To Strike

Defendant has moved to strike plaintiffs opening and reply briefs on the ground the briefs contained improper references to matters outside the record. To the extent that there are improper references in the briefs, they are irrelevant to the issues and disposition of the case. Rather than striking the briefs, we simply ignore the improper references. (Cal. Rules of Court, rule 8.204(e); Connecticut Indem. Co. v. Superior Court (2000) 23 Cal.4th 807, 813, fn. 2; Matuz v. Gerardin Corp. (1989) 207 Cal.App.3d 203, 206-207.)

IV. disposition

The judgment is reversed. Plaintiffs, Siljan Inc., Glorias Pupuseria, and Sylvia Martinez, are awarded their costs on appeal from defendant, Filet Menu, Inc.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

TURNER, P. J.

I concur:

KRIEGLER, J.

MOSK, J., Concurring

I concur.

The choice-of-forum clause here is not the kind of choice-of-law clause that makes the United States Arbitration Act, Title 9 United States Code section 1, et seq., inapplicable. When a choice-of-law clause specifically incorporates California law, federal law may be excluded. (See Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 387.) If federal law did not apply, federal cases on the waiver issues would not be determinative.

The clause in question does appear to be an attempt to provide, by obscure means, the right of defendant to arbitrate under the rules of the American Arbitration Association at defendants choice. The contract is a standard form contract imposed upon plaintiff. The clause purports to be a unilateral arbitration clauseone lacking in mutuality. It provides a choice of forum to the stronger party. Thus, to the extent the clause provides for arbitration, I believe it is procedurally and substantively unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 119 [employment context but referring to stronger and weaker parties]; see also Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071-1072.)

MOSK, J.

Publication Courtesy of California free legal resources.

Analysis and review provided by Spring Valley Property line attorney.

^[1] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

^[2] Section 1286.2 provides: (a) Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following: [] (1) The award was procured by corruption, fraud or other undue means. [] (2) There was corruption in any of the arbitrators. [] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [] (5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. [] (6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives. [] (b) Petitions to vacate an arbitration award pursuant to Section 1285 are subject to the provisions of Section 128.7.