Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Los Angeles Superior Court No. BC418332 denying arbitration and stay of proceedings. Zaven V. Sinanian, Judge.
Murtaugh Meyer Nelson & Treglia, Lawrence A. Treglia, Jr., David Davidson and Mark P. LaScola for Defendant and Appellant.
Jensen & Associates and Paul Rolf Jensen for Plaintiff and Respondent.
CHANEY, J.
Defendant Owen Group, Inc., doing business as Owen Design Group, Inc. (Owen Group), appeals from an order of the Los Angeles Superior Court denying Owen Group’s motion to compel arbitration. We conclude that the parties entered into no valid agreements that compel the arbitration of their disputes at the option of one of them. We therefore affirm.
Factual and Procedural Background
In July 2005, the Los Angeles Unified School District (LAUSD) contracted for Owen Group to provide architectural and engineering services for an LAUSD project involving construction at four sites. The contract provided in paragraph 18(b) that disputes between the LAUSD and Owen Group arising out of the Agreement “will be decided by binding arbitration....”
Paragraph 18(b) of the prime agreement, entitled “Arbitration, ” provides: “In the event negotiation between Architect-Engineer and Owner does not resolve the dispute within thirty (30) days, all claims, disputes and other matters in question between Owner and Architect-Engineer arising out of or relating to this Agreement or the breach thereof will be decided by binding arbitration [under American Arbitration Association construction industry rules]. [Arbitrator qualifications omitted.] This agreement so to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith as provided in this Agreement, as well as any arbitration award obtained thereto, will be specifically enforceable under the prevailing law of any court having jurisdiction.”
Owen Group, as “Prime Consultant, ” then entered into two, one-page “subconsultant” agreements with JMDiaz, Inc. (JMDiaz) for JMDiaz’s services as engineering subconsultant for portions of the project. The two subconsultant agreements were identical but for the amounts provided for JMDiaz’s compensation.
Paragraph 6 of each of the subconsultant agreements, entitled “Arbitration, ” provided in pertinent part: “Any controversy or claim concerning the Agreement or breach thereof, may be settled by arbitration in the County of Orange, [under American Arbitration Association construction industry rules]. Judgment upon the Arbitrators’ Award may be entered in any court having jurisdiction thereof, unless the parties mutually agree otherwise....”
The subconsultant agreements also provided, in paragraph 8, that “Subconsultant agrees to be bound by the applicable provisions of the Prime Contract set forth under Exhibit ‘A, ’ entitled Prime Contract Clauses. If the Exhibit is not attached, the subconsultant has the right to review the document at Prime Consultant’s office.”
The subconsultant agreements identify Exhibit A as a document entitled “Prime Contract Clauses, ” however, no document in the record on appeal is identified as Exhibit A to the subconsultant agreements or as the document entitled “Prime Contract Clauses” that was to be attached as an exhibit to the subconsultant agreements. There was no evidence in the trial court that a document entitled “Prime Contract Clauses” either accompanied the subconsultant agreements when they were signed or was available for examination; and there was no evidence as to what provisions of the prime contract it purportedly contained. A declaration of Juan M. Diaz says that when he signed them, the subconsultant agreements had no exhibits, and that he did not understand them to incorporate any other agreement by reference. And while Owen Group identifies an exhibit to its later motion as a copy of the prime contract, the exhibit seems to be a compilation of contract provisions along with some notes and correspondence.
On July 21, 2009, JMDiaz filed suit against Owen Group for amounts it claimed were unpaid under the subconsultant agreements, and for substantial additional monetary remedies for nonpayment. Owen Group filed an answer and a cross complaint against JMDiaz and its principal, Juan M. Diaz, alleging professional negligence, breach of contract, and a common count for money had and received. A few weeks later, after being told that counsel for JMDiaz did not believe there was an enforceable arbitration agreement between the parties, Owen Group filed a motion to compel arbitration. (Code Civ. Proc., § 1281.2.)
In the trial court and in this court Owen Group also cites the Federal Arbitration Act, Title 9 United States Code section 4, for the uncontroversial proposition that parties may obtain enforcement of a written arbitration agreement. In the absence of any suggestion why that provision applies here or how it should affect the outcome of our analysis, we do not consider it further.
JMDiaz opposed the motion to compel arbitration. The trial court denied the motion. JMDiaz served notice of the ruling’s entry, and Owens Group filed a timely appeal. The challenged order is appealable. (Code Civ. Proc., § 1294, subd. (a); Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349.)
Discussion
Standard of Review
The standards of review that govern an appeal from a trial court’s denial of a motion to compel contractual arbitration depend on the circumstances of the case. When the trial court’s ruling turns on issues of disputed fact, the reviewing court is bound by the facts expressly and impliedly found by the court, and its ruling is reviewed under the substantial evidence test. (Fagelbaum & Heller LLP v. Smylie (2009) 174 Cal.App.4th 1351, 1360.) When two or more inferences can reasonably be deduced from the facts and language of the agreement without exceeding the bounds of reason, the court may choose among them without abusing its discretion, and the reviewing court has no authority to substitute its own contrary decision. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479.)
However, when the issue before the trial court is the meaning of a written arbitration agreement (i.e., whether the agreement applies to the parties’ dispute) the writing is reviewed de novo unless there is conflicting extrinsic evidence as to the provision’s intended meaning. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 707-709; Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.) Where the trial court has before it no conflicting extrinsic evidence as to the agreement’s meaning, whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment. (Saint Agnes Medical Center v. Pacificare of California (2003) 31 Cal.4th 1187, 1196.)
The Trial Court Had Before It No Conflicting Extrinsic Evidence As To The Intended Meaning of the Disputed Contract Provisions.
JMDiaz contends that the trial court had before it conflicting evidence as to the meaning of the parties’ agreements, while Owen Group argues that our review of the contract terms—the arbitration provisions of both the subconsultant agreements and the prime contract—should be de novo. We conclude that the trial court had before it no conflicting extrinsic evidence relevant to the intended meaning of the contracts’ pertinent provisions. We therefore review the trial court’s ruling de novo.
In interpreting contractual language, we “must give effect to the ‘mutual intention’ of the parties” at the time the lease was executed. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18; Civ. Code, § 1636.) However, although the meaning of the agreement is determined by the parties’ intent, the relevant intent is the objective intent that is evidenced by the words used, and not an unexpressed subjective intent later expressed by a party. (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 838; Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54–55.)
Juan M. Diaz’s declaration, that he understood the subconsultant agreements to give his company the option but not the obligation to pursue arbitration, and that he had not understood that “some other document” (the prime contract) was incorporated by reference into the subconsultant agreements, therefore raises no issue of disputed fact. His unilateral uncommunicated understandings of the integrated subconsultant agreements’ written terms are not relevant to their interpretation; even if credited, they therefore provide no evidence of the parties’ mutual intent. By the same token, the declaration of Owen Group’s attorney about his understanding of the law and his conversation about the arbitration dispute with counsel for JMDiaz provides no evidence of the intended meaning of the parties’ agreements.
An agreement is ambiguous when its language is susceptible to more than one meaning. (Benedek v. PLC Santa Monica (2002) 104 Cal.App.4th 1351, 1357 [Ambiguity exists “‘when a party can identify an alternative, semantically reasonable, candidate of meaning of a writing’”].) To determine what the parties intended, we look first to the agreement’s language (Ibid.; see Civ. Code, §§ 1636, 1638, 1639), and to the matter to which the contract relates. (Civ. Code, § 1647; California National Bank v. Woodbridge Plaza LLC (2008) 164 Cal.App.4th 137, 146-147.)
We conclude that the trial court did not err in its determination that neither of the provisions on which Owen Group relies compel arbitration of the parties’ disputes.
The Subconsultant Agreements Do Not Require Either Party To Submit To Arbitration Of Disputes.
A trial court is required to order the parties to arbitration (subject to some exceptions) “if it determines that an agreement to arbitrate the controversy exists.” (Code Civ. Proc., § 1281.2; A. D. Hoppe Co. v. Fred Katz Construction Co. (1967) 249 Cal.App.2d 154, 159.) Owen Group based its motion to compel arbitration on the provisions of the subconsultant agreements that “[a]ny controversy or claim concerning this Agreement or breach thereof, may be settled by arbitration..., ” and alternatively, on its contention that JMDiaz is bound to the terms of the prime contract, by virtue of subconsultant agreements’ provision that “[s]ubconsultant agrees to be bound by the applicable provisions of the Prime Contract set forth under Exhibit ‘A’....” In opposition to the motion, JMDiaz argued that the subconsultant agreements offered “the option, but not the necessity, of arbitration”; that JMDiaz did not agree to be bound by the prime contract’s provision for arbitration; and that the subconsultant agreements’ arbitration provisions are in any event substantively and procedurally unconscionable.
We agree with the first and second of these contentions; we therefore do not consider the third.
The law favors interpretations that render contract provisions valid and operative rather than meaningless and unenforceable. (Civ. Code, § 1643.) And it favors contracts calling for arbitration as a speedy and relatively inexpensive method of resolving disputes. (Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271-1272.) Nevertheless, “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate....” (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744; RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1523.)
In each of the subconsultant agreements the parties agreed that their controversies and claims respecting their agreements “may be settled by arbitration...” On its face, that language identifies arbitration as an option: while the parties’ disputes “may” be settled by arbitration, so too, they may not.
That language is not reasonably susceptible to the meaning Owen Group suggests: that either party may compel the other into arbitration. It does not mean that the parties’ disputes shall be settled by arbitration, or must be settled by arbitration.
Were the agreements’ language reasonably susceptible to any of those meanings, we would be compelled to consider and address the parties’ intentions in light not just of the agreements’ language, but also in light of the agreements’ context and purpose, the policies of the law that favor contract interpretations that render provisions valid rather than meaningless, and that favor resolution of disputes by arbitration, and other factors that might bear on their intended meaning. But those factors cannot change the result here: the language of the agreements cannot reasonably be read to mean that arbitration is a requirement, not an option.
We are not free to speculate whether the parties might have intended a more mandatory meaning than that conveyed by the agreements’ language. Whether their choice of language was intentional or resulted from carelessness, we cannot substitute other terms or meanings for those set forth in their agreements. Their language simply cannot be read to convey a mandatory meaning.
The Prime Contract Does Not Require The Parties To Submit To Arbitration Of Disputes Arising Under The Subconsultant Agreements.
“‘Under California law, parties may validly incorporate by reference into their contract the terms of another document.’” (Slaught v. Bencomo Roofing Co. (1994) 25 Cal.App.4th 744, 748; Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co., supra, 6 Cal.App.4th at pp. 1271-1272.) However, to be incorporated by reference, “[t]he reference to the incorporated document must be clear and unequivocal and the terms of the incorporated document must be known or easily available to the contracting parties.” (Slaught v. Bencomo Roofing Co., supra, 25 Cal.App.4th at p. 748.)
In Slaught v. Bencomo Roofing Co., supra, the parties’ subcontracts expressly incorporated by reference the terms of the prime construction contract, which contained a provision requiring arbitration of disputes arising from the prime contract. The subcontracts provided that the subcontractor “shall be bound by all of the terms and conditions of the [prime] Contract Documents, and shall strictly comply therewith.” And the subcontracts also provided that “‘[a]ll rights and remedies reserved to Owner under the [prime] Contract Documents shall apply to and be possessed by Contractor in its dealings with Subcontractor.’” (Slaught v. Bencomo Roofing Co., supra, 25 Cal.App.4th at p. 749.) Based on these provisions, the court affirmed the trial court’s ruling compelling the subcontractor to join in the arbitration proceedings between the owner and the contractor. (Id. at p. 751.)
Owen Group contends that the subconsultant agreements in this case, like the subcontract agreements in Slaught v. Bencomo Roofing Co., provide that JMDiaz assumes the obligations of the prime contract. The subconsultant agreements effectively incorporate the prime contract’s terms requiring arbitration of disputes, it contends, thereby obligating JMDiaz to arbitrate its disputes with Owen Group even if the subconsultant agreements’ arbitration provisions do not.
In order to be effectively incorporated by reference, however, “[t]he reference to the incorporated document must be clear and unequivocal and the terms of the incorporated document must be known or easily available to the contracting parties.” (Slaught v. Bencomo Roofing Co., supra, 25 Cal.App.4th at p. 748; Spellman v. Securities, Annuities & Ins. Services, Inc. (1992) 8 Cal.App.4th 452, 457.) The provisions on which Owen Group relies for this point are not, however, so “clear and unequivocal” as those in Slaught v. Bencomo Roofing Co., supra, as that case holds they must be. (Slaught v. Bencomo Roofing Co., supra, 25 Cal.App.4th at p. 748.) The subconsultant agreements refer unequivocally to the prime contract; but the meaning of those references is anything but clear. Under paragraph 8 of the subconsultant agreements JMDiaz agreed “to be bound by the applicable provisions of the Prime Contract set forth under Exhibit ‘A, ’ entitled Prime Contract Clauses.” But even if the prime contract’s arbitration provision were identified as an “applicable provision[ ] of the Prime Contract” (it apparently was not), the prime contract does not clearly or unequivocally provide that JMDiaz or any other subconsultant must submit to arbitration of its disputes with the prime consultant. Rather, the prime contract provides that disputes between the LAUSD and the Owen Group—between the owner and the prime consultant—must be arbitrated. And unlike the applicable provision in Slaught v. Bencomo Roofing Co., supra, neither the subconsultant agreements nor the prime contract provides that the rights and remedies reserved to Owner under the prime contract documents “shall apply to and be possessed by Contractor in its dealings with Subcontractor.” (Slaught v. Bencomo Roofing Co., supra, 25 Cal.App.4th at p. 749.) Again, in the absence of another interpretation to which the contract language is reasonably susceptible and that is supported by evidence that it reflects the parties’ intentions, we are bound by the contract language. By that language JMDiaz agreed to be bound by the prime contract’s provision requiring that LAUSD and Owen Group submit their disputes about the prime contract to arbitration; but it does not say anything about arbitration of disputes between Owen Group and JMDiaz.
JMDiaz neither admits nor denies that the prime contract so provides.
Nor is Owen Group’s position aided by the decision in Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co., supra, 6 Cal.App.4th 1266. That decision compelled a surety for a construction contractor to join in an arbitration between the owner and the contractor with respect to disputes concerning the contractor’s performance under the prime contract, where the surety’s agreement with the contractor not only incorporated the terms of the prime contract, but also guaranteed the prime contractor’s performance under the prime contract. (Id. at pp. 1272-1273.) But the circumstances here are different. Nothing in the record shows that JMDiaz undertook a duty to LAUSD to guarantee Owen Group’s performance under the prime contract, and nothing shows that the outcome of Owen Group’s disputes with LAUSD (whatever they might be) will control JMDiaz’s liability to Owen Group.
We are not called upon in this case to decide whether a subcontractor such as JMDiaz should be compelled to join in an arbitration of disputes between its prime contractor and the project’s owner, the situation in Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co., supra. The trial court correctly found that the parties’ agreements do not constitute an agreement by JMDiaz, a subcontractor, to participate in a separate arbitration of its disputes with Owen Group, the prime contractor.
Disposition
The trial court’s order refusing to compel arbitration is affirmed. JMDiaz to recover its costs on appeal.
We concur: MALLANO, P. J., ROTHSCHILD, J.