Opinion
G031709.
11-12-2003
DEAN HARIZAVI, Plaintiff and Respondent, v. LANTRONIX CORPORATION, Defendant and Appellant.
Law Offices of Marla Merhab Robinson and John R. Marshall III for Defendant and Appellant. Stevens & Carlberg, Daniel P. Stevens and Janeen Carlberg Yoshida for Plaintiff and Respondent.
OPINION
THE COURT:
Before Bedsworth, Acting P. J., Moore, J., and Aronson, J.
An employer contends the trial court erred in denying its petition to compel arbitration of an employees job discrimination claim. But the arbitration clause contains an exclusion for at-will employment. The public policy favoring arbitration does not trump the requirement for a predicate agreement to arbitrate, so we affirm.
I
In November 2000, plaintiff Dean Harizavi was hired as a senior product manager for defendant Lantronix Corporation at a salary of $125,000 per year. He was terminated in October 2001, ostensibly because his job was eliminated. He alleged that he actually was fired in retaliation for his complaints against his supervisor, who "repeatedly made derogatory comments directed to and about plaintiffs race and national origin [Iranian] . . . which constituted severe and pervasive harassment."
Plaintiff filed suit in May 2002 for discrimination and retaliation under the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.). Lantronix actively defended the lawsuit and participated in discovery. Approximately six months later, it moved to dismiss the complaint and compel arbitration pursuant to Code of Civil Procedure section 1281 et seq. The trial court denied arbitration, citing a provision in plaintiffs agreement with Lantronix (section 10(d)) that excepted at-will employment from the contractual arbitration requirement.
II
There is a strong policy favoring arbitration (Armendariz v. Foundation Health Psychcare Services, Inc . (2000) 24 Cal.4th 83, 96-98), but only when the parties have agreed to arbitrate. (Marsch v. Williams (1994) 23 Cal.App.4th 250, 254.)
Since arbitration is a matter of contract, parties cannot be required to arbitrate disputes that they have not agreed to submit to arbitration. (Los Angeles Police Protective League v. City of Los Angeles (1988) 206 Cal.App.3d 511.) As the court explained in County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 244-245: "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. . . . `The right to arbitration depends on a contract. [Citations.] A party cannot be compelled to arbitrate a dispute that it has not elected to submit to arbitration. [Citation.]"
The moving party bears the burden of proving, by a preponderance of the evidence, the existence of a valid arbitration agreement. (Code Civ. Proc., §§ 1281.2, 1290.2.) We review the trial courts resolution of disputed facts on arbitrability as we do any evidentiary challenge on appeal, presuming the court found every fact and drew every permissible inference necessary to support its judgment. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) We independently review the arbitration clause de novo where the relevant facts and language are undisputed. (Buckner v. Tamarin (2002) 98 Cal.App.4th 140, 142.)
We apply general contract law in examining the language of the arbitration clause. (CPI Builders, Inc. v. Impco Technologies, Inc. (2001) 94 Cal.App.4th 1167, 1171.) To ascertain the parties mutual intent when the contract was formed, we look first to the written provisions of the contract, interpreting them in their ordinary and popular sense. (See discussion in Santisas v. Goodin (1998) 17 Cal.4th 599, 608.)
In Engineers & Architects Assn. v. Community Development Dept., supra, 30 Cal.App.4th 644, the trial court denied a petition to compel arbitration of an employment grievance, holding the decision was not arbitrable under the agreement. Notwithstanding the public policy favoring arbitration in doubtful cases, the appellate court affirmed the trial courts ruling based on the contractual language.
And in Mayhew v. Benninghoff (1997) 53 Cal.App.4th 1365, we held that an arbitration clause in a retainer agreement between an attorney and a client in a divorce proceeding did not require the client to arbitrate a dispute involving a separate business transaction with the same attorney. We cited the doctrine of contra proferentem to construe the all-purpose arbitration clause against the attorney who drafted it, noting that reasonable clients would construe it only to cover the family law matter for which the attorney had been retained. We declined to establish a blanket presumption of arbitrability for unclear contractual clauses: "Post-Moncharsh [v. Heily & Blase (1992) 3 Cal.4th 1] cases make it clear that `[a]lthough California has a strong policy favoring arbitration . . . the right to pursue claims in a judicial forum is a substantial right and one not lightly to be deemed waived. [Citations.] Because the parties to an arbitration clause surrender this substantial right, the general policy favoring arbitration cannot replace an agreement to arbitrate." (Mayhew v. Benninghoff, supra , 53 Cal.App.4th at p. 1371.)
We turn to the contract between the parties. Most of the contract involves confidentiality and trade secrets. Employees, for example, are required to hold "in strictest confidence" proprietary information concerning the company, including research, product plans and customer lists. Sole and exclusive rights to any patents and copyrights belong to the company. Employees are barred from conflicting employment, and from soliciting company employees for a one-year period after they leave the company.
Section 10 of the agreement contains an arbitration clause, but with an exception. Section 10(a) requires the arbitration of all disputes "arising out of, relating to, or in connection with this Agreement" under the rules of the American Arbitration Association except as provided in section 10(d) of the agreement.
Section 10(a) provides, in full: "Except as provided in Section 10(d) below, the Company and I agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration unless otherwise required by law, to be held in Orange County, California in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the `Rules). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrators decision in any court having jurisdiction." (Italics added.)
In like fashion, section 10(e) of the contract explains that, by assenting to arbitration, the signatories waive their right to a trial by jury "RELATING TO ALL ASPECTS OF MY RELATIONSHIP WITH THE COMPANY." However, like section 10(a), this section expressly exempts the provisions of section 10(d) from this waiver.
Section 10(e) provides, in full: "I HAVE READ AND UNDERSTAND THIS SECTION 10, WHICH DISCUSSES ARBITRATION. I UNDERSTAND THAT BY SIGNING THIS AGREEMENT, I AGREE, EXCEPT AS PROVIDED IN SECTION 10(d), TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRAITON, UNLESS OTHERWISE REQUIRED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF MY RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF MY RELATIONSHIP WITH THE COMPANY." (Italics added.)
Lantronix refers to this section in its appellants opening brief but inexplicably omits the reference to the section 10(d) exclusion.
Section 10(d) clearly relates to plaintiffs status as an at-will employee, but the import of the exception upon the arbitration clause is unclear. Section 10(d) provides, in full: "I understand that nothing in section 10 modifies my at-will status. Either the Company or I can terminate the employment relationship at any time, with or without cause." The exception does not expressly state whether disputes arising out of the at-will employment status must be litigated or arbitrated.
We are at loss to understand why section 10(d) was so inartfully drafted or what Lantronix possibly intended to mean by it. It offered no extrinsic evidence to explain the ambiguity. Indeed, its appellate briefs do not even discuss section 10(d), and omit references to it when quoting from section 10.
Applying general principles of contractual interpretation, we believe that a layperson would reasonably construe the agreement to require arbitration of any disputes involving intellectual property violations, unfair competition, or unauthorized disclosure of trade secrets or confidential information, but not to require arbitration of wrongful termination claims. As plaintiffs counsel argued below, "It seems like [section 10(d)] is excluding the termination of at-will status from the arbitration agreement right there. It just excluded 10(d). So it seems to be the effect is to exclude wrongful termination types of claims." We concur.
Although unnecessary to our decision, Lantronixs conduct after the execution of the contract casts light on the parties objective intent. "This rule of practical construction is predicated on the common sense concept that `actions speak louder than words." (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 754.) After plaintiff filed his lawsuit, Lantronix did not demand arbitration. To the contrary, it engaged in discovery, took plaintiffs deposition and prepared the case for trial. Arbitration was an attorney-initiated demand; indeed, Lantronix claims that it was not aware of its right to arbitrate the dispute until so informed by its counsel after plaintiffs deposition. According to its counsel, "This is the earliest date which the Defendant has been given proper opportunity to bring to this Courts attention the fact that . . . Plaintiff must, if he chooses to, proceed with the prosecution of his claims by way of binding arbitration."
Surely, Lantronix would have more promptly moved for arbitration had section 10 been as clear and explicit as it now contends. Lantronix has never claimed that it lost or misplaced the employment agreement. Its failure to promptly demand arbitration supports the inference that the arbitration clause exempts wrongful termination suits such as this one.
The denial of the petition to compel arbitration is affirmed. Costs on appeal are awarded to plaintiff.