Filed 2/21/18 Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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


ADVANCED CHARGING TECHNOLOGIES, INC.,

Plaintiff and Respondent,

v.

FLEXIBLE MANUFACTURING, LLC, et al.,

Defendants and Appellants.


G054671

(Super. Ct. No. 30-2016-00888053)

O P I N I O N

Appeal from an order judgment of the Superior Court of Orange County, Mary Fingal Schulte, Judge. Reversed and remanded with directions.
The Buncher Law Corporation, Sven D. Buncher; and Alan S. Yockelson for Defendants and Appellants.
Muzi & Associates, Andrew C. Muzi and Evan A. Basakis for Plaintiff and Respondent.
Flexible Manufacturing, LLC (Flexible) and Broadband Telecom Power, Inc. (Broadband), appeal from an order denying their motions to compel arbitration of the complaint brought against them by Advanced Charging Technologies, Inc. (Advanced Charging). Flexible and Broadband argue the trial court erred in concluding the arbitration provision contained in a separate licensing agreement (the Licensing Agreement) incorporated by reference into the parties’ settlement agreement (the Settlement Agreement) was not applicable to the claims asserted by Advanced Charging. We agree in part.
Although the Settlement Agreement was entered into one day after the Licensing Agreement, and it includes an integration clause which states it supersedes all prior agreements, it does incorporate the terms and conditions of the Licensing Agreement into its provisions. Thus, the Settlement Agreement preserves the provisions of the Licensing Agreement, including its arbitration provision, rather than extinguishing them. As a consequence, the provisions of the two documents must be read together.
Further, we reject Advanced Charging’s assertion that the dispute resolution provisions in the Settlement Agreement itself are inconsistent with the arbitration provision contained in the Licensing Agreement. The Settlement Agreement’s venue provision specifies that proceedings must be brought in Orange County, California, but does not require they be brought in a court of law. Similarly, its attorney fees provision applies to “lawsuit or other proceedings,” and specifically allows for the recovery of both “court costs or costs of such other proceedings.” (Italics added.) Both provisions are broadly worded to encompass the submission of claims to arbitration.
However, we are persuaded by Advanced Charging’s contention the Licensing Agreement’s arbitration provision is narrowly drawn—applying only to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement—and thus it would not apply to every potential breach of the broader Settlement Agreement. But the solution to that problem is not to ignore the arbitration provision completely. Instead, it is to apply that provision only to claims alleging breach of the rights set forth in the Licensing Agreement, while rejecting its application to claims alleging breaches of other aspects of the Settlement Agreement.
Consequently, we reverse the trial court’s order denying the motions to compel arbitration and stay proceedings in the trial court, and we remand the case to the trial court with directions to grant the motion to compel to the extent that Advanced Charging’s claims arise out of or in connection with the Licensing Agreement incorporated by reference into the Settlement Agreement, and to deny it insofar as those claims do not arise out of or in connection with the Licensing Agreement. The court must then determine whether the resolution the any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2. Following that determination, the court shall make whatever stay order is appropriate.
FACTS
The parties entered into the Settlement Agreement on October 2, 2014. The Settlement Agreement recites it is intended to wind up the parties’ participation in a “Product Development and Supply Agreement” entered into in 2011, a “Forecast Ordering Agreement” entered into in 2012, and a “Joint Venture Agreement” entered into in 2013. The Settlement Agreement states the parties are terminating those three specified agreements, except as otherwise preserved therein, and resolving any claims the parties might have against each other.
The Settlement Agreement also states that as of its effective date, Flexible and Broadband are licensing to Advanced Charging “the intellectual property rights to the designs of the Products . . . pursuant to the term of the Licensing Agreement set forth in Exhibit C” to the Settlement Agreement. (Italics added.) It goes on to say that “pursuant to the terms and conditions of the Licensing Agreement, [Advanced Charging] shall have an exclusive license to use develop, market, manufacture and sell the Products . . . within the Exclusive Territory (as defined in the Licensing Agreement) and on terms as defined and set forth in the Licensing Agreement.” (Italics added.)
One of the terms and conditions of the attached Licensing Agreement, dated only one day before the Settlement Agreement, is an arbitration provision. That provision states, in pertinent part, that “[a]ny dispute or claim arising out of or in connection with any provision of this Agreement will be finally settled by binding arbitration in Orange County, California, in accordance with the Commercial Rules of Arbitration of the American Arbitration Association.” It also requires that “[t]he arbitrator shall apply California law, without reference to rules of conflicts of
law or rules of statutory arbitration, to the resolution of any dispute.”
The Settlement Agreement is broader in scope than the Licensing Agreement, however. It also contains provisions by which Flexible and Broadband sell the goodwill value of their products within certain territories to Advanced Charging, and it gives Advanced Charging a right of first refusal over competing products developed within Advanced Charging’s exclusive territory. The Settlement Agreement also gives Advanced Charging the option of purchasing certain accessories from Flexible and Broadband, and requires it to purchase other products for a period of six years on specified terms.
The Settlement Agreement also requires Advanced Charging to pay financial consideration as set forth in the Licensing Agreement, plus an additional amount of $2,602,500 in the form of a promissory note which is also attached as an exhibit to the Settlement Agreement. Moreover, Flexible and Broadband are required to sign a subordination agreement, also attached as an exhibit to the Settlement Agreement.
The Settlement Agreement also includes a paragraph specifying “[a]ll questions concerning this Agreement, its construction, and the rights and liabilities of the Parties hereto will be interpreted and enforced in accordance with the laws of the State of California as applied to contracts which are executed and performed entirely within the state. For purposes of this Agreement, sole and proper venue will be the County of Orange, State of California.” Additionally, it states that “If a lawsuit or other proceedings are instituted by any Party to enforce any of the terms or conditions of this Agreement against any other Party hereto, the prevailing Party in such litigation or proceedings will be entitled . . . to such reasonable attorneys’ and other professional fees . . . and court costs or costs of such other proceedings as may be fixed by any court of competent jurisdiction, or other judicial or quasi-judicial body having jurisdiction thereof.”
And finally, the Settlement Agreement includes an integration clause, stating “[t]his Agreement contains the Parties’ sole and entire agreement regarding the subject matter hereof, and supersedes any and all other agreements between them.”
In November 2016, Advanced Charging filed its complaint, stating causes of action for breach of contract, breach of the covenant of good faith and fair dealing,
fraud, and negligent misrepresentation against Flexible and Broadband. The complaint alleged that on October 2, 2014, Advanced Charging entered into the Settlement Agreement with Flexible and Broadband, and the Settlement Agreement incorporated by reference the “Licensing Agreement” attached to it as “Exhibit C.”
According to the complaint, the Licensing Agreement gave Advanced Charging “‘the exclusive right and license . . . to manufacture [and] market’” a specified list of products within the United States, Canada and Chile, including one referred to as “product ‘C24-510-S.’” However, in violation of that Licensing Agreement, “[Flexible and Broadband] sold or caused to be sold, and shipped a quantity of nine C24-510-S products . . . to [companies] within the ‘Exclusive Territory’ as defined in the Licensing Agreement.” Moreover, the complaint alleges “[Flexible and Broadband] are actively attempting to sell within the Exclusive Territory, one or more of the products identified in the List of Products and are actively attempting to undercut [Advanced Charging’s] business by, among other things, marketing to [Advanced Charging’s] customers.”
The complaint also alleges that pursuant to the terms of the Settlement Agreement, Advanced Charging “agree[d] to purchase certain products and in certain
quantities from [Flexible and Broadband], including, but not limited to UBDs, subject to certain terms and conditions, including, but not limited to, that the ‘UBD is sold as-is and any desired changes that [Advanced Charging] has will be quoted by [Flexible and Broadband].” However, when Advanced Charging later notified Flexible and Broadband that their UBD “had become or will become obsolete and unsaleable, and requested that [they] provide a price quote . . . to upgrade and manufacture a current marketable product,” Flexible and Broadband refused to provide that quote.
For those alleged breaches, Advanced Charging sought remedies including damages, rescission of the Settlement Agreement, and injunction.
In January 2017, Flexible and Broadband responded to the complaint by filing a motion to stay proceedings until an arbitration of Advanced Charging’s claims can be completed, along with a motion to compel arbitration of those claims. The motions were based on the arbitration provision contained in the Licensing Agreement, which Flexible and Broadband contended had been incorporated by reference into the Settlement Agreement.
Advanced Charging opposed the motions to stay the proceedings and compel arbitration. Although it acknowledged (as it had in the complaint) that the Licensing Agreement was incorporated by reference into the Settlement Agreement—along with the promissory note and subordination agreement—Advanced Charging argued the Licensing Agreement’s arbitration provision had nonetheless been superseded by the Settlement Agreement’s own venue provision.
Advanced Charging also asserted that the arbitration provision in the Licensing Agreement was too narrow in scope to be construed as applying to the Settlement Agreement as a whole. As it noted, the Licensing Agreement’s arbitration provision applied only to disputes which “[arise] out of or in connection with any provision of this Agreement [i.e., the Licensing Agreement],” and thus it would not apply to disputes arising out of other aspects of the Settlement Agreement or out of the promissory note or subordination agreement that were also incorporated into it.
The trial court denied both the motion to compel the arbitration and the motion to stay the proceedings. The court explained that Flexible and Broadband had not met their burden of establishing a “clear, unambiguous and unequivocal waiver of the right to a judicial resolution” because the Settlement Agreement “refers to the Licensing Agreement as a separate agreement” and contains an integration clause stating it “supersedes any and all other agreements between the parties.” Additionally, the court reasoned that even if the two agreements were read together, the limited arbitration provision contained in the Licensing Agreement did not evidence any clear agreement to arbitrate disputes arising out of the broader Settlement Agreement, and its language “did not extend to the dispute herein.”
DISCUSSION
1. Standard of Review
“There is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court’s order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court’s denial rests solely on a decision of law, then a de novo standard of review is employed.” (Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425.)
In this case, the trial court confined its analysis to an interpretation of the Settlement Agreement, focusing on whether its terms supersede the arbitration provision in the Licensing Agreement. Indeed, the trial court expressly stated it “did not rely on any declarations submitted herein in making its ruling.” Consequently, our review is de novo.
2. Incorporation of Licensing Agreement into Settlement Agreement
Flexible and Broadband assert the Licensing Agreement was incorporated by reference into the Settlement Agreement, and thus the arbitration provision contained in the Licensing Agreement also became an enforceable term of the Settlement Agreement itself.
Although Advanced Charging apparently agrees the Licensing Agreement was incorporated by reference into the Settlement Agreement, it nonetheless contends the arbitration provision contained in that Licensing Agreement was superseded by the Settlement Agreement, rather than preserved by it.
Our own review of the Settlement Agreement convinces us that it incorporates the Licensing Agreement into its terms. As explained in Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 790, “‘“‘For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated
document must be known or easily available to the contracting parties.’”’” Significantly, the incorporating document “need not recite that it ‘incorporates’ another
document, so long as it ‘guide[s] the reader to the incorporated document.’” (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54.)
In this case, the Settlement Agreement’s incorporation of the Licensing Agreement is patent. The Settlement Agreement provides that from and after its effective date, Advanced Charging will license specified products from Flexible and Broadband “pursuant to the terms and conditions of the Licensing Agreement,” which is attached as an exhibit. The Settlement Agreement makes several other direct references to the Licensing Agreement, in each case referring to the Licensing Agreement as the document which governs the details of the parties’ agreement on the relevant subject. For example, the Settlement Agreement provides that “pursuant to the terms and conditions of the Licensing Agreement, [Advanced Charging] shall have an exclusive license to use develop, market, manufacture and sell the Products . . . within the Exclusive Territory (as defined in the Licensing Agreement) and on terms as defined and set forth in the Licensing Agreement, as well as certain other non-exclusive rights in Mexico, as more specifically set forth in the Licensing Agreement.” (Italics added.)
Similarly, the Settlement Agreement provides that under specified circumstances, Flexible and Broadband shall have the right to develop, market and sell the “New Product” for other customers without further restriction under this Agreement, except for the applicable restrictions set forth in the Licensing Agreement.
The Settlement Agreement’s explicit and repeated references to the terms of the Licensing Agreement as establishing the parties’ rights and responsibilities, combined with its attachment of that agreement as an exhibit to the Settlement Agreement, demonstrates an incorporation of those terms into the Settlement Agreement.
Further, while the Settlement Agreement recites the parties are terminating three other existing agreements, it expressly acknowledges the continuing validity of the Licensing Agreement, in accordance with its terms. Specifically, the Settlement Agreement states that “from July 1, 2016, until the termination of the Licensing Agreement, [Advanced Charging] shall have a ninety days (90) right of first refusal [pertaining to the sale of certain products.]” (Italics added.)
Nonetheless, Advanced Charging contends that even if the Licensing Agreement was incorporated by reference into the Settlement Agreement, its arbitration provision was overridden by inconsistent provisions contained in the later drafted Settlement Agreement. Although Advanced Charging acknowledges that when “‘[s]everal contracts relating to the same matters, between the same parties, [are] made as parts of substantially one transaction, [they] are to be taken together,’” (quoting Civ. Code, § 1642), it emphasizes that when the provisions of the two documents are inconsistent, the provisions of a later drafted document will supersede the provisions of an earlier one. (See Frangipani v. Boeker (1998) 64 Cal.App.4th, 860, 863 [“Where there is an inconsistency between two agreements both of which are executed by all of the parties, the later contract supersedes the former”].)
We do not dispute the legal point; however, we reject the argument because it is analytically flawed, and also based on misleading characterizations of the Settlement Agreement.
Advanced Charging first points to the Settlement Agreement’s integration clause as demonstrating the arbitration provision in the Licensing Agreement was superseded. That clause, as is typical, states that the Settlement Agreement “contains the Parties’ sole and entire agreement regarding the subject matter hereof, and supersedes any and all other agreements between them.” Thus, according to Advanced Charging, any provisions written into the Licensing Agreement, executed the day before the Settlement Agreement, would have been wiped out by the Settlement Agreement. However, in making that assertion, Advanced Charging has ignored the point it correctly conceded earlier: i.e., that the Licensing Agreement was incorporated into the Settlement Agreement. By incorporating the Licensing Agreement into its terms, the Settlement Agreement preserved them. It did not supersede them.
Moreover, Advanced Charging’s reliance on the integration clause also ignores the fact the Settlement Agreement expressly acknowledges the continuing existence of the Licensing Agreement within its substantive provisions. That specific reference to the continuing viability of the Licensing Agreement, in particular, takes precedence over the more generic language of the Settlement Agreement’s integration clause in determining whether the Licensing Agreement remained in existence following the execution of the Settlement Agreement. (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, [Under well-established principles of contract interpretation, when a general and a particular provision are inconsistent, the particular and specific provision is paramount to the general provision].)
For both of those reasons, we reject Advanced Charging’s reliance on the Settlement Agreement’s integration clause as a basis for claiming the Licensing Agreement’s arbitration clause was superseded.
But Advanced Charging does not stop there. It also points to the Settlement Agreement’s “‘Governing Law and Venue’” provision, which expressly identifies “the County of Orange, State of California” as the “‘proper venue’” for disputes regarding its terms. According to Advanced Charging, that clause is inconsistent with the arbitration of disputes. However, the venue provision does not specify the disputes must be resolved in court, only that they must be resolved in Orange County. Thus, the provision is entirely consistent with the Licensing Agreement’s arbitration provision, which also requires that any arbitration take place “in Orange County, California.”
Advanced Charging also asserts that “Section 8.2 [of the Settlement Agreement] entitled ‘No Use As Evidence,’ expressly contemplates ‘litigation.’ [And] Section 11.0 entitled ‘Attorney’s Fees’ also expressly contemplates ‘a lawsuit,’ ‘litigation,’ and ‘court costs.’” Unfortunately, both contentions are flatly misleading, as neither provision is limited in the way Advanced Charging would have us believe.
Section 8.2 actually states that it restricts the admissibility of waivers or modifications of any term or condition of the Settlement Agreement “in any proceeding, arbitration, or litigation between the Parties arising out of or affecting this Agreement.” (Italics added.) And Section 11.0 broadly applies to “a lawsuit or other proceedings . . . instituted by any Party to enforce any of the terms or conditions of this Agreement,” and allows recovery of both “court costs or costs of such other proceedings as may be fixed by any court of competent jurisdiction, or other judicial or quasi-judicial body having jurisdiction thereof.” (Italics added.) Hence, it is beyond dispute that both of these provisions contemplate that disputes arising in connection with the Settlement Agreement might be resolved in nonjudicial forums, including arbitration. Advanced Charging’s effort to claim otherwise, relying on highly selective quoting of these provisions, serves only to undermine its position on appeal.
Having reviewed the Settlement Agreement, we find nothing in its terms to be inconsistent with the Licensing Agreement’s provision for arbitration of disputes. We consequently reject Advanced Charging’s assertion that the arbitration provision, specifically, was superseded by the Settlement Agreement.
Advanced Charging’s final contention is more persuasive, although it does not lead us to the conclusion Advanced Charging would like. It points out that the arbitration provision in the Licensing Agreement is limited in scope, applying only to “[a]ny dispute or claim arising out of or in connection with any provision of this Agreement,” and thus would not apply to disputes arising out of aspects of the Settlement Agreement that are unrelated to the incorporated terms of the Licensing Agreement. We agree. “In cases involving private arbitration, ‘[t]he scope of arbitration is . . . a matter of agreement between the parties’” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8), and in this case, the arbitration clause’s reference to “this Agreement” means specifically the Licensing Agreement. Consequently, the agreement to arbitrate extends only to disputes arising out of the provisions of the Licensing Agreement.
Advanced Charging then suggests the trial court properly denied the motion to compel arbitration because “a majority of [Advanced Charging’s] allegations in the Complaint concern the breach of terms that are exclusive to the Settlement Agreement,” rather than the Licensing Agreement. But arguing that a “majority” of the allegations of breach do not fall within the scope of an arbitration provision does not establish that the motion to compel arbitration should have been denied entirely. Rather, it suggests that only those alleged breaches that fall within the scope of the arbitration provision should have been ordered into arbitration.
When the parties’ dispute is governed in part by an enforceable arbitration clause, but other issues included in the same pending action fall outside its scope, Code of Civil Procedure section 1281.2, subdivision (d) allows the trial court to “delay its order to arbitrate until the determination of such other issues” only if it makes a determination that the resolution of those other issues “may make the arbitration unnecessary.” Otherwise, the trial court has no discretion to deny arbitration on that basis.
Consequently, we conclude the trial court erred by denying, in their entirety, Flexible and Broadband’s motions to compel arbitration and to stay proceedings in the trial court. Instead, the trial court should have ordered arbitration of those claims that arose “out of or in connection with any provision of [the Licensing Agreement]” while denying arbitration of those claims that arose out of other provisions of the Settlement Agreement.
DISPOSITION
The orders are reversed and the case is remanded to the trial court with directions to grant the motion to compel arbitration to the extent Advanced Charging’s claims arise out of or in connection with the Licensing Agreement that is incorporated by reference into the Settlement Agreement, and to deny the motion insofar as those claims do not arise out of or in connection with the Licensing Agreement. The court must then determine whether, in its view, the resolution any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2. Following that determination, the court shall enter whatever stay order is appropriate. Flexible and Broadband are entitled to costs on appeal.



THOMPSON, J.

WE CONCUR:



O’LEARY, P. J.



IKOLA, J.