Nicholas Laboratories v. Chen

Filed 10/28/08 Nicholas Laboratories v. Chen CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Affirmed.

Weiss & Hunt, Thomas J. Weiss, and Hyrum K. Hunt for Defendant and Appellant.

Overland, Borenstein, Scheper & Kim and Diann H. Kim for Plaintiff and Respondent.

* * *

In a role reversal of the archetypal case, ex-employee Christopher Chen appeals the trial courts denial of his petition to compel contractual arbitration against his ex-employer, Nicholas Laboratories, LLC.[1] The court found Chen did not meet his statutory burden of establishing the existence of a written arbitration agreement between the parties. (Code Civ. Proc.,  1281.2.) Chen failed to attach the alleged agreement to his petition, instead relying on a declaration claiming he recalled signing a document with a broad arbitration agreement covering all disputes. Because the court, as the trier of fact, was entitled to find Chen did not meet his burden of establishing the existence of an arbitration agreement, we affirm.

FACTS

Nicholas employed Chen from late 2004 to early 2007. In June 2007, Nicholas filed a complaint against Chen setting forth multiple causes of action related to alleged breaches of contract and torts committed by Chen during his term of employment. After answering and filing a cross-complaint for indemnity, Chen filed a motion to compel arbitration.[2]

In support of his motion, Chen executed and submitted a declaration. In relevant part, the declaration stated: I formerly was an employee of plaintiff Nicholas Laboratories, LLC, from approximately October, 2004 to approximately March, 2007. At or about the time I was hired, I recall that I filled out and signed certain documents, including an application for employment and a document titled CERTIFICATION PLEASE READ CAREFULLY. . . . I was unable to find any [copies of these documents in my own records.] [] I do recall that it was the practice or policy of Nicholas Laboratories LLC while I was an employee to have new employees or prospective employees sign arbitration agreements for controversies relating to their employment. When I could not find any signed copies of the documents I signed, I contacted other former employees of Nicholas Laboratories, and was able to obtain copies of the forms. Attached hereto as Exhibit 1 is a copy of the application forms. At page 4, it includes the document CERTIFICATION  PLEASE READ CAREFULLY, which is similar or identical in substance to the form of agreement which I signed in 2004. This form at the bottom bears the notation v2.0/last update 10-17-06. Although I signed the form in 2004, I recall that the one I signed was also titled CERTIFICATION  PLEASE READ CAREFULLY. I recall that it does contain both the at-will clause saying my employment was for an unspecified term, and the arbitration clause which provided that any controversy relating to my employment would be subject to arbitration under the employment arbitration rules of the American Arbitration Association. I also specifically recall that in addition to the arbitration clause, the agreement I signed contained the waiver of right to jury trial.

Chen attached 11 pages of forms and disclosure documents as exhibit 1 to his declaration, none of them signed or otherwise marked. The page entitled CERTIFICATION  PLEASE READ CAREFULLY included the following arbitration provision: To the fullest extent allowed by law, I expressly agree that any controversy, claim or dispute between me and the Company (and/or any of its affiliates, owners, shareholders, directors, officers, employees, volunteers or agents) relating to or arising out of my employment or the cessation of that employment will be submitted to final and binding arbitration before a neutral arbitrator in the county in which I work(ed) for determination in accordance with the American Arbitration Associations National Rules for the Resolution of Employment Disputes as the exclusive remedy for such controversy, claim or dispute. In any such arbitration, the parties may conduct discovery to the same extent as would be permitted in a court of law. The arbitrator shall issue a written decision stating the essential findings and conclusions on which the award is based, and shall have full authority to award all remedies that would be available in court. The Company shall pay all arbitrators fees and any arbitration administrative expenses. Chen asserted his declaration, together with the attached documents, established the existence of an agreement to arbitrate for purposes of his motion to compel arbitration.

Nicholas filed an opposition to Chens motion, arguing Chen had not proven the existence of an agreement to arbitrate. Nicholas did not explicitly deny an arbitration agreement existed. Nor did Nicholas submit any evidence along with its opposition to counter Chens declaration. Instead, Nicholas noted: (1) Chen admitted he does not possess a signed copy of an agreement containing an arbitration provision; (2) the form containing the arbitration agreement includes the company name NS Holdings, LLC on its footer and does not reference Nicholas; (3) the documents attached to Chens motion mentioning Nicholas do not include arbitration provisions; and (4) the version date (October 17, 2006) of the document with the arbitration provision means this document version could not have been in existence when Chen was hired.[3]

The court denied Chens motion without prejudice: Moving party has not shown that an agreement for arbitration exists or that the dispute is covered by the agreement. At most Moving Party has shown that an arbitration agreement may exist. At oral argument, counsel for Chen and the court clarified precisely what was intended by denying the motion without prejudice. MR. HUNT: Your Honor, the tentative is to deny without prejudice. So, whats going to happen is were going to ask for the agreement in discovery without waiving the right to arbitrate and were going to get an agreement that looks just like the one thats exhibit 1. [] THE COURT: And you know what, when you do then you can come back and well talk about it again. [] MR. HUNT: Okay.

Chen appealed the courts order in a timely fashion.[4] (Code Civ. Proc.,  1294, subd. (a) [An order dismissing or denying a petition to compel arbitration is an appealable order]; Sanders v. Kinks Inc. (2002) 99 Cal.App.4th 1106, 1109-1110 [denial of petition for arbitration without prejudice is appealable].) All proceedings below have been stayed pending this appeal. (Prudential-Bache Securities, Inc. v. Superior Court (1988) 201 Cal.App.3d 924, 925.)

DISCUSSION

Burden of Proof and Standard of Review

Subject to specified statutory defenses, a court is required to order arbitration of a controversy if it determines a written arbitration agreement exists covering the controversy at issue. (Code Civ. Proc.,  1281.2; Kennedy, Cabot & Co. v. National Assn. of Securities Dealers, Inc. (1996) 41 Cal.App.4th 1167, 1176.) Because it is considered to be a speedy and relatively inexpensive method of resolving disputes, there is a strong presumption favoring arbitration. (Federal Ins. Co. v. Superior Court (1998) 60 Cal.App.4th 1370, 1374.) Nonetheless, [a]rbitration is a matter of contract and a party cannot be required to arbitrate a dispute he has not agreed to submit. (Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1230 (Villacreses).)

Here, the sole issue is whether a written agreement to arbitrate the controversy exists; no suggestion was made below or on appeal that Chen waived his right to arbitrate this dispute (if an agreement exists), that grounds exist to revoke the agreement (should it exist), or that pending litigation elsewhere should forestall the arbitration. (See Code Civ. Proc.,  1281.2.) Chen bears the burden of establishing the existence of a written arbitration agreement. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. (Villacreses, supra, 132 Cal.App.4th at p. 1230.) Trial courts are required to hold an evidentiary hearing to resolve contested factual issues bearing on arbitrability. (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 765 (Hotels Nevada).)[5]

The court ruled Chen did not prove the existence of a written arbitration agreement covering the dispute at issue by a preponderance of the evidence. In hearing a petition to compel arbitration, a trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the courts discretion, to reach a final determination on the issue of arbitrability. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-357.) We typically review the courts factual findings for substantial evidence. (Id. at p. 357.) Deference to the trial courts factual findings applies equally whether the issues were tried on affidavits or on live testimony. (Bolkiah v. Superior Court (1999) 74 Cal.App.4th 984, 1000.)

Our review is slightly altered in light of Nicholass failure to submit any evidence disproving the existence of an arbitration agreement. Technically, we cannot find substantial evidence disproving the existence of the agreement in the record. Instead, the relevant question is whether the trial court was entitled to find Chen did not meet his burden of putting forward evidence of ponderable legal significance. A trial judge is not bound to accept as true the sworn testimony of a witness even in the absence of evidence contradicting it, and this rule applies to an affidavit . . . . (Warner Bros. Records, Inc. v. Golden West Music Sales (1974) 36 Cal.App.3d 1012, 1017, fn. 7.) Moreover, when the facts are undisputed but different inferences may be drawn about whether such facts satisfy a moving partys burden of proof, we must honor the trial courts determinations and must not make our own deductions from the record. (In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 301 [rejecting argument that uncontested declarations necessarily met burden of establishing documents should be sealed as trade secrets].) In sum, if the court was entitled to reject Chens submissions as having no evidentiary weight, we will affirm even if the court also could have found in favor of Chen.

Finally, we will not presume the court erred in its ruling; an order challenged on appeal is presumed correct and all intendments and presumptions are indulged to support the order on matters to which the record is silent. (Cochran v. Rubens (1996) 42 Cal.App.4th 481, 486.)

Denial of Petition for Arbitration

Chens primary argument on appeal is he satisfied his burden of establishing the existence of an arbitration agreement under Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215 (Condee). In Condee, the petitioner submitted a copy of the purported arbitration agreement as an exhibit to its petition to compel arbitration. (Id. at pp. 217-218.) Despite the lack of a challenge to the documents authenticity, the trial court denied the petition on the grounds that petitioner had not properly authenticated the agreement under the rules of evidence. (Ibid.) The appellate court reversed, holding it was not necessary to follow the normal procedures of document authentication as to the arbitration agreement. (Id. at pp. 218-219.) The matter was remanded for a hearing on the enforceability of the arbitration agreement in light of various defenses to enforcement raised by the Condee respondent. (Id. at p. 219.)

The Condee court cited former rule 371 of the California Rules of Court (renumbered as rule 3.1330 and non-substantively amended as of January 1, 2007) to support its reasoning. (Condee, supra, 88 Cal.App.4th at p. 218.) This rule presently states: A petition to compel arbitration . . . pursuant to Code of Civil Procedure section[] 1281.2 . . . must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be attached to the petition and incorporated by reference. (Cal. Rules of Court, rule 3.1330 (rule 3.1330).) The Condee court reasoned petitioners compliance with former rule 371 of the California Rules of Court, by attaching a copy of the agreement to its petition, satisfied the petitioners initial burden of establishing the existence of an arbitration agreement. (Condee, supra, 88 Cal.App.4th at p. 218; Hotels Nevada, supra, 144 Cal.App.4th at p. 765 [petitioner may meet its burden by complying with former rule 371].)

Condee is not determinative of the instant appeal. Chens inability to locate a copy of his alleged arbitration agreement precluded him from attaching such a copy to his petition. The trial court did not deny Chens motion for lack of authentication of his purported agreement to arbitrate with Nicholas  there is no such agreement in the record to authenticate. Instead, after reviewing the partys submissions, the court determined Chen had not met his burden of establishing by a preponderance of the evidence the existence of an arbitration agreement or that this particular dispute is covered by such an agreement. (See Adajar v. RWR Homes, Inc. (2008) 160 Cal.App.4th 563, 569-571 [denial of petition to compel arbitration affirmed when documents allegedly containing arbitration provisions were not provided to the court].)

Chen also argues Nicholass failure to introduce any evidence at the evidentiary hearing precludes an adverse ruling to Chen. We disagree. The court was justified in choosing to ignore the attachments to the declaration submitted by Chen. The unsigned documents were obtained from unnamed sources; Chen has no personal knowledge over the ultimate source of these documents or whether these particular forms were ever executed by any Nicholas employees. The only form containing an arbitration clause never identifies Nicholas; another company, NS Holdings, LLC is identified in the footer. The footer to the document containing an arbitration clause also identifies it as a version created in 2006, while Chen admits he began working in 2004. In short, the court could justifiably determine that the attachments to Chens declaration are wholly unreliable evidence of the contents of an alleged agreement between Chen and Nicholas.

Furthermore, Chens testimony is woefully vague as to the contents of the arbitration clause at issue. The closest Chen comes to submitting evidence bearing on the dispute is his testimony that he recall[s] that [the document I signed] does contain . . . the arbitration clause which provided that any controversy relating to my employment would be subject to arbitration under the employment arbitration rules of the American Arbitration Association. As an initial matter, this testimony was inadmissible under the rules of evidence. [6] (Evid. Code,  1523.) Moreover, there are reasons to doubt the trustworthiness of Chens testimony. Chen signed his declaration more than three years after the commencement of his employment with Nicholas. Chens declaration is ambiguous as to whether he claims to remember the precise contractual language to which he allegedly agreed. Regardless of the intended meaning of the declaration, the court was entitled to disbelieve Chens recollection of either the inclusion or scope of the alleged arbitration provision in a form he completed years earlier.

Thus, the court was entitled to find Chen failed to submit relevant and admissible evidence establishing the existence of an arbitration agreement. In the absence of any credited evidence, the scales were in equipoise and Chen did not meet his burden of establishing the existence of an arbitration agreement. This result is bolstered by rule 3.1330, which contemplates, as a prerequisite to filing a petition to compel arbitration, the possession of an actual copy of the written arbitration agreement. Rule 3.1330 requires a petitioner to either attach the arbitration agreement itself to the petition or to provide therein the relevant terms verbatim. Rightly nervous about representing the verbatim contents of an alleged document not in his actual possession to the court, Chen did not strictly comply with rule 3.1330.

Rather than establish his possession of the arbitration agreement at issue, Chen relied on inherently untrustworthy and inadmissible submissions. The court was justified in denying Chens motion, without prejudice to a subsequent motion relying on a copy of the actual arbitration agreement.[7]

DISPOSITION

For the foregoing reasons, we affirm the courts order denying appellants motion to compel arbitration. In the interest of justice, the parties shall bear their own costs.

IKOLA, J.

WE CONCUR:

SILLS, P. J.

ARONSON, J.

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[1] Compounding the unusual nature of this appeal is the lack of a respondents brief from Nicholas. We have decide[d] the appeal on the record, the opening brief, and . . . oral argument by appellant. (Cal. Rules of Court, rule 8.220(a)(2).)

[2] It is well settled that [a] proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Brodke v. Alphatec Spine Inc. (2008) 160 Cal.App.4th 1569, 1574.) However, as the suit between Nicholas and Chen was already pending, it was unnecessary for Chen to file a separate petition to compel arbitration  a noticed motion was sufficient. (Code Civ. Proc.,  1290-1290.2; Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349.)

[3] Nicholas also argued Chen obtained the documents attached to his declaration through improper means. It does not appear that this issue had any bearing on the trial courts ruling, and we likewise ignore Nicholass arguments made to the trial court concerning the manner in which Chen obtained the documents at issue. The only issue before us is whether Chen established the existence of an arbitration agreement such that the trial court should have compelled arbitration.

[4] The record is silent as to whether Chen attempted to obtain an arbitration agreement from Nicholas through discovery procedures following the hearing.

[5] Had Nicholas opposed the petition on the grounds that a statutory defense applied (such as waiver, revocation, or the existence of duplicative judicial proceedings), the burden would have been placed on Nicholas to establish such defense. (Villacreses, supra, 132 Cal.App.4th at p. 1230.)

[6] Although Nicholas did not file evidentiary objections and the court did not make any evidentiary rulings, the substance attested to in Chens declaration is inadmissible as testimony designed to prove the contents of a writing. Evidence Code section 1523 provides: (a) Except as otherwise provided by statute, oral testimony is not admissible to prove the content of a writing. [] (b) Oral testimony of the content of a writing is not made inadmissible by subdivision (a) if the proponent does not have possession or control of a copy of the writing and the original is lost or has been destroyed without fraudulent intent on the part of the proponent of the evidence. [] (c) Oral testimony of the content of a writing is not made inadmissible by subdivision (a) if the proponent does not have possession or control of the original or a copy of the writing and either of the following conditions is satisfied: [] (1) Neither the writing nor a copy of the writing was reasonably procurable by the proponent by use of the courts process or by other available means. [] (2) The writing is not closely related to the controlling issues and it would be inexpedient to require its production. [] (d) Oral testimony of the content of a writing is not made inadmissible by subdivision (a) if the writing consists of numerous accounts or other writings that cannot be examined in court without great loss of time, and the evidence sought from them is only the general result of the whole. Chen did not make any of the showings required (e.g., the document was lost) to establish an exception to the general rule that testimony proving the contents of a writing is inadmissible. Indeed, Chen admitted at oral argument that obtaining the agreement would simply be a matter of utilizing the mechanisms of civil discovery.

[7] The circumstances of this appeal are baffling. Rather than utilizing discovery procedures to obtain the actual alleged agreement (as he indicated he would to the court), Chen appealed. Further complicating the dynamic is the silence of Nicholas: either the agreement exists or it does not exist, but Nicholas has not taken a position either way in the court or on appeal. We will not speculate as to the parties motivations or strategic considerations. However, it is apparent that either party could have eliminated the need for this appeal through the exercise of common sense and candor.