Landsverk v. Lindsey

Full title: RICHARD LANDSVERK, Individually and as Trustee, etc. et al., Plaintiffs…

Court: California Court of Appeals, Fourth District, Second Division

Date published: Aug 12, 2024

No. E078989 (Cal. Ct. App. Aug. 12, 2024)

Opinion

E078989

08-12-2024

RICHARD LANDSVERK, Individually and as Trustee, etc. et al., Plaintiffs and Respondents, v. WILLIAM RAY LINDSEY, et al., Defendants and Appellants.

Markun Zusman & Compton, Edward S. Zusman, Kevin K. Eng and Tadeusz McMahon for Defendants and Appellants. Reif Law Group, Brandon S. Reif and Marc S. Ehrlich for Plaintiffs and Respondents.

FIELDS J.

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County, No. CIVSB2110153 Janet M. Frangie, Judge. Reversed with directions.

Markun Zusman & Compton, Edward S. Zusman, Kevin K. Eng and Tadeusz McMahon for Defendants and Appellants.

Reif Law Group, Brandon S. Reif and Marc S. Ehrlich for Plaintiffs and Respondents.

OPINION

FIELDS J.

I. INTRODUCTION

Plaintiffs and respondents Richard Landsverk and Dorothy Landsverk (the Landsverks), and seven other plaintiffs and respondents,¹ sued ten defendants, including defendant and appellant, William Ray Lindsey (Lindsey),² alleging tort claims against all defendants based on financial and estate planning services that defendants, through Lindsey, provided to the Landsverks and the seven other plaintiffs between 2011 and 2019. Plaintiffs' complaint alleges five tort cases of action against each defendant: breach of fiduciary duty, financial elder abuse, common law fraud, professional negligence, and constructive fraud.

1 The nine plaintiffs and respondents are Richard Landsverk, Dorothy Landsverk (the Landsverks), the Richard Landsverk and Dorothy Landsverk Trust, dated July 5, 1990, by co-trustees Richard Landsverk and Dorothy Landsverk (the LFT or legacy trust), the Landsverk Legacy Trust, dated June 4, 2012, by co-trustees Richard Landsverk and Dorothy Landsverk (the LLT or living trust), Betaroan, LLC (Betaroan), NAVI Enterprises, LLC (NAVI), and Terry Baby, LLC (Terry).

2 The ten originally named defendants are: Lindsey, Jeremy Matthew Lindsey (Jeremy), Mark William Pearson (Pearson), Michael L. Meyer (Meyer), Lindsey Financial, Inc., a California corporation (LFI), Lindsey Financial Group, Inc., a California corporation (LFGI), Lindsey Financial & Insurance Services, Inc., a California corporation (LFIS), Nepsis, Inc., a Minnesota corporation (Nepsis), Blue Sky Unlimited, LLC, a Wyoming limited liability company (Blue Sky), and National Outreach Foundation Incorporated, a California corporation (NOFI).

Six of the ten defendants, namely, the Lindsey defendants,³ moved to compel arbitration of plaintiffs' claims. The other four defendants, Meyer, Pearson, Nepsis, and NOFI (the "non-Lindsey defendants) did not join the Lindsey defendants' motion, or file their own motion to compel arbitration. The trial court denied the Lindsey defendants' motion, and the Lindsey defendants' appeal. The complaint has been ordered dismissed against Meyer.

3 The six Lindsey defendants are: Lindsey, Jeremy, LFI, LFGI, LFIS, and Blue Sky. The four incorporated Lindsey defendants are sometimes referred to as the "Lindsey entities." Meyer is no longer a party in this action. Pearson, Nepsis, and NOFI are sometimes referred to as the "non-Lindsey defendants."

The Lindsey defendants' motion is based on the arbitration provisions of two agreements that the Landsverks signed with two Lindsey-affiliated entities, in connection with purchasing financial planning services through Lindsey: (1) a "financial planning agreement" signed in March 2012 between the Landsverks and nondefendant "LFG Family Office Services, Inc." (LFGFOS) (the 2012 agreement), and (2) a "client services agreement" signed in March 2018 between the Landsverks and Lindsey defendant, LFI (the 2018 agreement). None the defendants are signatories to the 2012 agreement. LFI is the only Lindsey defendant, and the only defendant, that is a signatory to the 2018 agreement. Besides the Landsverks, none of the other plaintiffs are signatories to either agreement.

The trial court denied the Lindsey defendants' motion based on the "third party litigation exception" to the California law generally requiring courts to enforce written arbitration agreements. (Code Civ. Proc., § 1281.2, subd. (c) (§ 1281.2(c)).⁴ The court noted that the Lindsey defendants who were not signatories to the 2012 or the 2018 agreement (all of the Lindsey defendants except LFI), failed to articulate a legal basis entitling them to enforce the arbitration provisions of either agreement against any of the plaintiffs. The court rejected the Lindsey defendants' claim that the third party litigation exception did not apply (1) based on the choice of law provisions of the two agreements, and (2) because the substantive provisions of the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (the FAA) preempted California's third party litigation exception. (Code Civ. Proc. § 1281.2(c)). The court also found the third party litigation exception applied, that is, there was a possibility of conflicting rulings on common questions of law and fact if the Landsverks' claims against LFI were arbitrated, but the Landsverks' claims against the other defendants, and the other plaintiffs' claims against all defendants, were tried in court. Thus, the court exercised its discretion to deny the motion under the third party litigation exception. (Ibid.)

4 Undesignated statutory references are to the Code of Civil Procedure.

For the first time in this appeal, the Lindsey defendants claim they are entitled to enforce the arbitration provisions of the 2012 and 2018 agreements against all plaintiffs based on theories of equitable estoppel, even though none of the Lindsey defendants are signatories to the 2012 agreement and only LFI is a signatory to the 2018 agreement. The Lindsey defendants also renew their claims that the third party litigation exception (§1281.2(c)) does not apply, based on the choice of law provisions of the agreements and because the substantive provisions of the FAA preempt the third party litigation exception. Thus, the Lindsey defendants claim the court was required to order plaintiffs' claims against the Lindsey defendants to arbitration, even there is a possibility of conflicting rulings on common questions of law and fact if plaintiffs' claims against the Lindsey defendants are arbitrated but plaintiffs' claims against the non-Lindsey defendants are not. (§1281.2(c).)

We conclude that plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants. We also conclude that the third party litigation exception applies to plaintiffs' nonarbitrable claims against the non-Lindsey defendants, namely, Pearson, Nepsis, and NOFI. (§ 1281.2(c).) We reject the Lindsey defendants' choice-of-law and FAA-preemption claims.

Thus, we reverse the order denying the Lindsey defendants' motion to compel arbitration of plaintiffs' claims against the Lindsey defendants. We remand the matter to the trial court with directions to determine the appropriate disposition of the matter under the third party litigation exception, that is, whether to deny or stay arbitration of plaintiffs' claims against the Lindsey defendants, in light of plaintiffs' nonarbitrable claims against Pearson, Nepsis, and NOFI, and the possibility of conflicting rulings on common questions of law and fact in the arbitration and court proceedings. (§1281.2(c).)

II. FACTS AND PROCEDURE

A. The Third Party Litigation Exception, Overview "California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes." (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 (Acquire II); Moncharsh v. Heily &Blase (1992) 3 Cal.4th 1, 9.) To further this policy, section 1281.2 requires a trial court to enforce a written arbitration agreement, by ordering the parties to the agreement to arbitration, unless one of three "limited" statutory exceptions applies: "(1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; [or] (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues. (§ 1281.2, subds. (a)-(c).)" (Acquire II, at p. 967; People v. Laswell (2010) 189 Cal.App.4th 1399, 1404-1405 (Laswell).) The third of these exceptions, set forth in section 1281.2(c), is known as the "third party litigation exception." (Williams v. Atria Las Posas (2018) 24 Cal.App.5th 1048, 1054 (Williams).)

For purposes of the third party litigation exception, a "third party" means a party that is not bound by the arbitration agreement. (RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1519.) Section 1281.2(c)" 'addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement. '" (Cronus Investments v. Concierge Services (2005) 35 Cal.4th 376, 393 (Cronus).) The third party litigation exception "thus does not apply when all defendants, including a nonsignatory to the arbitration agreement, have the right to enforce the arbitration provision against a signatory plaintiff. [Citations.] The exception' "is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California's statutory scheme designed to enforce the parties' arbitration agreements.'" (Laswell, supra, 189 Cal.App.4th at p. 1405, quoting Cronus, at p. 393.)

The third party litigation exception (§1281.2(c)) applies when three conditions are satisfied: (1) "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party [i.e., a party not bound by the arbitration agreement]," (2) the third party action "aris[es] out of the same transaction or series of related transactions" as the action between the parties to the arbitration agreement; and (3) "there is a possibility of conflicting rulings on a common issue of law or fact" in the arbitrable and third party actions. (Acquire II, supra, 213 Cal.App.4th at pp. 967-968.) If these three conditions are satisfied, section 1281.2(c) "identifies four options from which the court may choose: (1) 'refuse to enforce the arbitration agreement and . . . order intervention or joinder of all parties in a single action or special proceeding'; (2) 'order intervention or joinder as to all or only certain issues'; (3) 'order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding'; or (4) 'stay arbitration pending the outcome of the court action or special proceeding.' (Acquire II, at p. 968; Williams, supra, 24 Cal.App.5th at p. 1054.)

B. The Allegations of Plaintiffs' Complaint ⁵

5 We describe the allegations of plaintiffs' complaint in some detail, without finding or meaning to suggest that any of the allegations are true or false.

1. Background Allegations

In 2011, the Landsverks owned around $11.3 million in investment assets, including over $2 million in stock and bond funds, over $2 million in annuity contracts with insurance companies, and nearly $7 million in rental real estate. The Landsverks were elderly and "experiencing cognitive decline." Two years earlier, in 2009, Richard suffered a stroke, which left him "with cognitive impairment and coordination issues" and "no longer able to maintain such an involved role for his real estate assets." By 2011, Dorothy was also "unable to keep up with the constant demands of the real estate assets," which included working with tenants and collecting rents. In 2011, the Landsverks' children introduced them to Lindsey and urged them to "adopt a simplified financial and estate plan." The Landsverks are devout Christians and trusted Lindsey because he represented himself to be" 'a man of [religious] faith.' "

"Lindsey was the Landsverks' registered investment advisor, financial consultant, and estate planner" from December 2011 through the spring of 2019. During this time, Lindsey and the "Lindsey Entities," namely, LFI, LFGI, and LFIS, "use[d] their role as fiduciaries to manipulate and direct the Landsverks into making detrimental financial decisions" and "to consent to having multiple third-parties involved in their financial, estate, and tax plans." Lindsey specifically "convinced the Landsverks to allow Meyer, Pearson, Jeremy, Nepsis, Blue Sky, and NOFI to all have critical roles and substantial involvement in [the Landsverks'] financial affairs."

The complaint alleges there were three aspects of defendants' manipulation of the Landsverks' finances and self-dealing at the Landsverks' expense. The first-the noncash charitable contribution plan-"stemmed from Lindsey, Lindsey Entities, Meyer, and NOFI directing the Landsverks to pursue an estate and tax plan that involved non-cash charitable contributions" that, unbeknownst to the Landsverks, "were fraudulently appraised by Meyer." The second-the high-risk securities plan-"stemmed from Lindsey, Lindsey Entities, Pearson, and Nepsis directing the Landsverks to invest in high-risk and volatile securities that generated excessive fees and commissions for defendants." The third-the high-risk private loan plan-involved "defendants' coercing the Landsverks to enter into multiple, high-risk private money loans and real estate transactions," administered by Lindsey and Blue Sky and "designed to benefit Lindsey, Lindsey's family and friends, Jeremy, Pearson, Blue Sky, and Lindsey's personal business interests."

2. The Non-Cash Charitable Contribution Plan

As part of the non-cash charitable contribution plan, in 2012, Lindsey and the Lindsey Entities convinced the Landsverks to create a "family legacy trust," plaintiff LLT, and two "legacy limited liability companies," plaintiffs Betaroan and Navi. The Landsverks funded Betaroan with their rental properties and funded Navi with their personal savings and brokerage account assets. In exchange, Betaroan and Navi issued voting and nonvoting interests to the Landsverks. The Landsverks then transferred the majority of their nonvoting interests in Betaroan and Navi to their legacy trust, the LLT. Meyer appraised the value of Landsverks' gifts to the LLT, and the Landsverks filed a "corresponding gift tax return." Later in 2012, the Landsverks transferred the rest of their nonvoting shares in Betaroan to the LLT, and transferred all of their voting interests in Betaroan to their "family" or living trust, the LFT. The LFT then began transferring nonvoting interests in Betaroan to NOFI, a "so-called 'Charitable Donor Advised Fund.' "

Meyer and the Lindsey defendants represented that "Meyer's proposed estate and tax plan was a lawful method to reduce the Landsverks' tax liability," but "actively concealed" "Meyer's role in facilitating tax schemes, Meyer's baseless appraisal and valuation of charitable contributions, and NOFI's role as a conduit in facilitating bogus charitable deductions by accepting fraudulently valued non-cash contributions." The charitable contribution plan generated "annual administration fees, and investment fees that were payable to Lindsey, Meyer and NOFI."

In 2015, the Landsverks created Terry, with Betaroan as a nonvoting member of Terry. Betaroan then began transferring its nonvoting interests in Terry to NOFI. By 2015, the Landsverks, as co-trustees of their legacy trust, the LLT, had transferred "significant amounts of Betaroan and Terry non-voting preferred stock [or membership interests] to NOFI." In 2018, Lindsey "took control of NOFI" after its president passed away and assumed "charge of managing [NOFI's] operations and investments." In 2019, Meyer was "permanently enjoined from giving charitable tax advice and organizing, marketing or assisting with the marketing of charitable giving tax schemes throughout the United States." NOFI is "at risk of losing" its certification as a tax-exempt organization under Internal Revenue Code section 501(c)(3). Due to the representations of Lindsey, Lindsey Entities, Meyer, and NOFI, plaintiffs have "suffered severe tax liabilities and will potentially suffer severe tax penalties."

3. The High-Risk Securities Plan

In April 2012, Lindsey introduced the Landsverks to Pearson, a financial advisor at Nepsis. "Lindsey, Lindsey Entities, Pearson, and Nepsis urged the Landsverks to transfer their money to a Nepsis investment account managed by Lindsey and Pearson." Lindsey and Pearson then used the Landsverk's former "well-diversified funds" to purchase shares of "two highly speculative small-cap stocks" which lost over ninety percent of their values after 2016 to 2017. "In June and July of 2012, Lindsey and Lindsey Entities directed the Landsverks to consolidate their insurance holdings that were diversified across fifteen (15) different annuity contracts" by transferring the balance of ten (10) of the annuity contracts to other insurance companies in exchange for new annuity contracts. The value of the new annuities was nearly $1.2 million. The annuity exchanges "did not provide any immediate benefit to the Landsverks" and "subjected their investment to high premiums and lengthy surrender periods." The new annuities carried steep penalties for early withdrawal, which had expired on the former annuities. In connection with these stock and annuity investments, Lindsey, Lindsey Entities, Pearson, and Nepsis took advantage of the Landsverks by "charging excessive management fees and commissions" and "conceal[ing]" other overrides and commissions from the Landsverks.

4. The Private Money Loan Plan

The third aspect of Lindsey's and the Lindsey Entities' financial plan for the Landsverks involved convincing the Landsverks to sell 11 of 17 rental properties the Landsverks had transferred to Betaroan, and to use the sales proceeds to have Betaroan "enter into numerous risky, self-dealing private money loans." The wife of an employee of Lindsey Entities sold the 11 properties and received a commission on each sale, and Lindsey Entities "engaged in 'double-dipping' by charging the Landsverks a fee for each property sold." The sales of the 11 properties caused the Landsverks to "incur" or realize approximately $6 million in capital gains. Rather than advise the Landsverks to make tax-free exchanges to defer capital gains taxes, "Lindsey directed the Landsverks to allocate the funds from the property sales to NOFI" and charged management fees on the $6 million transferred to NOFI.⁶

6 The complaint alleges that, if NOFI loses its tax-exempt status, the Landsverks may lose their charitable deduction to NOFI, be obligated to pay capital gains on Betaroan's sales of the 11 properties, and "incur substantial tax penalties that may exceed 125% of the amount they contributed to the scheme" to take a charitable deduction for transferring the property sales proceeds to NOFI.

"From the proceeds of the property sales, Lindsey and Lindsey Entities directed the Landsverks to start issuing risky private money loans." Lindsey negotiated the terms of, and convinced the Landsverks to approve, 1) a $160,000 loan to Pearson, 2) a $275,000 loan to Lindsey's "son and business associate" Jeremy, and 3) a $310,000 loan to another Lindsey Entities employee. Lindsey "manipulated the Landsverks to extend very favorable terms" on these loans, including below-market interest rates and unilateral extension rights.

Pearson was an "SEC investment advisor." Jeremy was "a FINRA registered financial and SEC investment advisor," a Lindsey Entities employee, and "named as 'junior advisor' on the Landsverk's customer file with Lindsey Entities." Thus, applicable securities laws and regulations prohibited Jeremy and Pearson from borrowing money from clients, including the Landsverks. "Lindsey was fully aware [of] and complicit in the borrowing and failed to stop it and declined to report it to the regulators and to the plaintiffs."

Lindsey also convinced the Landsverks to approve substantial private loans to Lindsey's clients and personal friends. By December 2018, the Landsverks had nearly $3.9 million outstanding in "risky private money loans," including a $2 million uncollateralized loan to Commissions Early, LLC. Blue Sky administered this loan, and Lindsey's wife, Barbara Lindsey, managed Blue Sky. Under the terms of the loan agreement with Commissions Early, LLC, Blue Sky was entitled to five percent of each loan disbursement. Lindsey never disclosed that his wife managed Blue Sky. "Lindsey was the alter ego of Blue Sky," which "served as another hidden channel through which Lindsey would unjustly enrich himself by double-dipping on commissions and loan administration fees."

5. Alter Ego and Agency Allegations

The complaint generally alleges that, in doing the things alleged, "each defendant was the agent, principal, servant, representative, employer, employee, joint venturer, coconspirator, partner, parent, subsidiary, affiliate, and/or alter ego of each and every other defendant." The complaint further alleges: "By taking advantage of the reposed trust and confidence the Landsverks had bestowed in him, Lindsey convinced the Landsverks to allow Meyer, Pearson, Jeremy, Nepsis, Blue Sky, and NOFI to all have critical roles and substantial involvement in their financial affairs. Lindsey and Lindsey Entities had business and personal relationships with Meyer, Pearson, Jeremy, Nepsis, Blue Sky, and NOFI. The extent of these relationships and the self-dealing nature of Meyer, Pearson, Jeremy, Nepsis, Blue Sky, and NOFI's involvement was concealed from the Landsverks and discovery will be needed to unmask it."

6. Plaintiffs File Suit After Discovering Defendants "Malfeasance"

In 2020, the Landsverks initially discovered defendants' "malfeasance" when they were notified that the Internal Revenue Service had decertified NOFI's status as a taxexempt organization under Internal Revenue Code section 501(c)(3). Plaintiffs did not discover the "true extent" of defendants' "misrepresentations, self-dealing, and other misconduct" until after plaintiffs hired counsel and tax experts. In April 2021, plaintiffs filed their complaint, alleging five tort causes of action against all defendants: breach of fiduciary duty, financial elder abuse, common law fraud, professional negligence, and constructive fraud.

B. The Lindsey Defendants' Motion to Compel Arbitration

The Lindsey defendants moved to compel arbitration of plaintiffs' claims against the Lindsey defendants but they did not seek to compel arbitration of plaintiffs' claims against Meyer, Pearson, Nepsis, and NOFI. In a supporting declaration, Lindsey averred he was a licensed financial consultant, estate planner, and principal of LFI, LFIS, and nondefendant LFGFOS. Lindsey defendant, LFI. is an "investment advisory" firm. Lindsey further averred that the Landsverks and "the Lindsey defendants" entered into a "financial planning agreement" "for professional investment advisory activities" dated March 13, 2012-the 2012 agreement. Lindsey adduced a copy of the 2012 agreement, which shows it was entered into by and between the Landsverks and "LFG Family Office Services" (LFGFOS) effective March 13, 2012, with Lindsey signing the agreement as "representative" of LFGFOS. As noted, and contrary to Lindsey's indication that the Lindsey defendants are parties to the 2012 agreement, none of the defendants, including any of the Lindsey defendants, are parties to the 2012 agreement. By its terms, the 2012 agreement was to be in effect for six months unless the parties extended it for an additional six months. On September 14, 2012, the parties signed an addendum extending the 2012 agreement for an additional six months, to March 13, 2013.

The 2012 agreement defines "You" as the Landsverks and "We" as "LFG Family Office Services, . . . its agents, employees, and assigns." In the 2012 agreement, "We" (LFG Family Offices, its agents employees, and assigns), agreed to (1) "review and analyze" the Landsverks' "financial status," including their assets, cash flow, insurance, and estate and tax planning needs, and (2) provide financial planning services to the Landsverks by proposing various financial planning strategies. A financial planning fee of $35,000 was due upon signing, and unspecified fees and commissions were payable for additional financial services and products.

The 2012 agreement includes choice of law and arbitration provisions. The choice of law provision states: "We and You agree that California law shall govern the interpretation and enforcement of this agreement." (Added italics.) The arbitration provision states: "Any controversy arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with either: i) the Rules of Procedure for Christian Conciliation of the Institute for Christian Conciliation [(the ICC rules)]; or ii) the FINRA Code of Arbitration Procedure."

The arbitration provision of the 2012 agreement required the Landsverks to check a box selecting which procedural rules would apply, and the Landsverks checked the box selecting the ICC rules. Next to the checked box appears the statement: "We and You are Christians and each believe that the Bible commands us to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6: 1-8). Therefore, We and You agree that any claim or dispute arising out-of or related to this agreement shall be settled by biblically-based mediation and, if necessary, legally binding arbitration in accordance with the [ICC rules]."

Lindsey averred that "plaintiffs later chose to renew their relationship with the Lindsey defendants and entered into another written agreement . . . [o]n or about March 13, 2018, . . . the Client Services Agreement" (the 2018 agreement). (Added italics.) Lindsey also adduced a copy of the 2018 agreement, which is signed and entered into by and between LFI as "We" and the Landsverks as "Client." Lindsey signed the 2018 agreement as "Investment Advisor Representative" of LFI. The 2018 agreement had a six-month term, beginning on March 13, 2018; it required LFI to provide "financial planning services" to the Landsverks; in exchange, the Landsverks agreed to pay LFI a financial planning fee of $150,000 upon signing, and pay additional fees and commissions for other financial services and products.

The 2018 agreement includes choice of law and arbitration provisions; the choice of law provision states: "California law, and specifically the Local Rules of Court of the Superior Court of California[,] County of San Bernardino, shall govern the interpretation and enforcement of this agreement." The arbitration provision states: "Any controversy arising out of or relating to this Agreement shall be settled by . . . [¶] . . . [¶] . . . biblically-based mediation and, if necessary, legally binding arbitration in accordance with [the ICC rules]."

In their motion, the Lindsey defendants argued that the arbitration provisions of the 2012 and 2018 agreements required plaintiffs' claims against the Lindsey defendants to be arbitrated under the ICC rules, given that all of the claims arose "from the Lindsey defendants rendering financial advice and recommending investments to plaintiffs." The Lindsey defendants also claimed that the choice of law provisions of the 2012 and 2018 agreements showed the parties to the agreements intended the procedural rules of the FAA to apply to arbitrations conducted pursuant to the agreements; accordingly, the procedural rules of the CAA, including the third party litigation exception (§1281.2(c)), did not apply; they were preempted by the procedural rules of the FAA.

Thus, the Lindsey defendants argued the court was required to order plaintiffs' claims against the Lindsey defendants to arbitration under the FAA-even if there was a possibility of conflicting rulings on common issues of law and fact on plaintiffs' arbitrable claims against the Lindsey defendants, and plaintiffs' nonarbitrable claims against the non-Lindsey defendants, Meyer, Pearson, Nepsis, and NOFI. In addition, the Lindsey defendants argued it was "dubious that plaintiffs would be able to show" that any of the defendants were not entitled to enforce the 2012 and 2018 agreements, given that the complaint alleged each defendant acted as the" 'agent, principal, servant, representative, employer, employee, joint venturer, co-conspirator, partner, parent, subsidiary, affiliate and/or alter ego of each and every other defendant.' "

C. Plaintiffs' Opposition

In opposition to the Lindsey defendants' motion, plaintiffs acknowledged that the Landsverks "decided to retain the Lindsey defendants' services in or around December 2011" and that the Landsverks "renewed" the Lindsey defendants' "services on or about March 13, 2018" by signing the 2018 agreement. (Added italics.) Plaintiffs claimed, however, that the 2018 agreement was invalid and unenforceable because 1) the Landsverks signed the agreement "under undue influence"; and 2) the agreement was procedurally and substantively unconscionable.

Plaintiffs also claimed that the 2018 agreement showed the parties intended the CAA, including the third party litigation exception (§ 1281.2(c)), to apply to any arbitration conducted pursuant to the 2018 agreement. Plaintiffs argued that the choice of law provision of the 2018 agreement was "unquestionably 'broad enough to include state law on the subject of arbitrability'" because it explicitly stated that "California law" would "govern the interpretation and enforcement" of the agreement.

Plaintiffs urged the court to stay any arbitration between plaintiffs and the Lindsey defendants because all three requirements of the third party litigation exception were met: 1) parties to the 2018 agreement, the Landsverks, were parties to this pending court action against several third-parties to the 2018 agreement, namely, Meyer, Pearson, Nepsis, and NOFI; 2) plaintiffs' dispute with the Lindsey defendants arose out of the same transaction or series of related transactions as plaintiffs' dispute with the third party defendants; indeed, "Lindsey's proposed financial plan included the endorsement and recommendation" of the other defendants' services; and 3) "because of this connection between the Lindsey defendants and their co-defendants" there was a possibility of conflicting rulings on common issues of law or fact if plaintiffs' claims against the Lindsey defendants were ordered to arbitration, and plaintiffs' claims against the nonLindsey defendants were tried in court.

D. The Lindsey Defendants' Reply

In reply, the Lindsey defendants argued that plaintiffs had proffered no evidence, and had therefore failed to prove, that the 2018 agreement was invalid or unenforceable either because it was a product of defendants' undue influence on the Landsverks or because it was procedurally or substantively unconscionable. The Lindsey defendants' reiterated their claim that, under the choice of law provision of the 2018 agreement, the FAA's procedural rules (9 U.S.C. §§ 3, 4, 10, 11) applied to arbitrations conducted pursuant to the agreement. Thus, they argued that the CAA and the third party litigation exception (§ 1281.2(c)) did not apply, and the court had no discretion to deny their motion to compel arbitration of plaintiffs' claims against them based on the third party litigation exception. (§ 1281.2(c).)

E. The Trial Court's Ruling

The court denied the motion in a written order dated April 22, 2022. The court found that the Lindsey defendants did not articulate a legal basis for allowing the nonsignatory Lindsey defendants to enforce the arbitration provisions of the 2012 agreement or the 2018 agreement against the signatory plaintiffs, the Landsverks, or the nonsignatory plaintiffs, LLT, LFT, Betaroan, Navi, and Terry. The court appropriately noted: "it should not be up to the court to pick a legal theory that may provide support for the nonsignatories to compel arbitration under the 2018 agreement." The court then found that the third party litigation exception (§ 1281.2(c)) applied, noting that, "given the transactions and number of interrelated parties," enforcing the 2018 agreement between the Landsverks and LFI would "create a risk of conflicting rulings" on common questions of law and fact vis-a-vis the continuing court proceedings on all of the plaintiffs' claims against all of the defendants except LFI. (§ 1281.2(c).) Finally, the court rejected the Lindsey defendants' claim that the procedural rules of the FAA, rather than section 1281.2(c), applied to the 2018 agreement under its choice-of-law provision.

The Lindsey defendants timely appealed from the April 22, 2022 order denying their motion to compel arbitration. Thereafter, plaintiffs' complaint against Meyer was ordered dismissed.

III. DISCUSSION

The Lindsey defendants claim that all of the plaintiffs are equitably estopped from refusing to arbitrate plaintiffs' claims against the Lindsey defendants pursuant to the arbitration provisions of the 2012 and 2018 agreements. For the reasons we explain, we agree.

A. The Newly Raised Equitable Estoppel Claim

The Lindsey defendants did not raise their equitable estoppel claim in the trial court; they first raised the claim in their reply brief in this appeal. Thus, plaintiffs did not have an opportunity to respond to the claim in their respondents' brief. In a December 6, 2023 order, we directed plaintiffs and the Lindsey defendants to file supplemental briefs addressing: (1) whether plaintiffs are equitably estopped from refusing to arbitrate plaintiffs' claims against the Lindsey defendants pursuant to either the 2012 agreement or the 2018 agreement; and (2) if so, whether the trial court has discretion to deny or stay arbitration between plaintiffs and the Lindsey defendants pursuant to the third party litigation exception (§ 1281.2(c).) On January 16, 2024, plaintiffs and the Lindsey defendants filed supplemental briefs addressing these questions.

A legal theory may be raised for the first time on appeal if it presents a question of law that may be determined based on undisputed facts. (Willis v. City of Carlsbad (2020) 48 Cal.App.5th 1104, 1117; Panopulos v. Maderis (1956) 47 Cal.2d 337, 341.) The equitable estoppel claim satisfies this criterion: the claim is determinable based on the undisputed terms of the 2012 and 2018 agreements, additional uncontroverted evidence adduced on the Lindsey defendant's motion, and the allegations of the complaint, assuming the allegations to be true for purposes of the motion.

An appellate court has discretion to decline to consider a legal theory raised for the first time on appeal, even if the claim presents a question of law. (POET, LLC v. State Air Resources Bd. (2013) 218 Cal.App.4th 681, 751.) Here, however, we exercise our discretion to consider the Lindsey defendants' equitable estoppel claim." 'Appellate courts are more inclined to consider such tardily raised legal issues where the public interest or public policy is involved.'" (Resolution Trust Corp. v. Winslow (1992) 9 Cal.App.4th 1799, 1810.) The public policy of enforcing arbitration agreements favors considering the equitable estoppel claim. (See Weiler v. Marcus &Millichap Real Estate Investment Services, Inc. (2018) 22 Cal.App.5th 970, 979 [the CAA and the FAA "both are driven by a strong public policy of enforcing arbitration agreements"].)

B. Standard of Review

An order denying a motion to compel arbitration is an appealable order. (§1294, subd. (a).)" '" '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.'" '" (Coughenour v. Del Taco, LLC (2020) 57 Cal.App.5th 740, 747; Acquire II, supra, 213 Cal.App.4th at pp. 967-968.)

C. Equitable Estoppel in the Arbitration Context

"Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.' "The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration." '" (Westra v. Marcus &Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763 (Westra); Benaroya v. Willis (2018) 23 Cal.App.5th 462, 469 ["Numerous cases confirm the general rule that 'a party cannot be compelled to arbitrate a dispute that he or she has not agreed to resolve by arbitration"]; Goldman v. Sunbridge Healthcare, LLC (2013) 220 Cal.App.4th 1160, 1169 [" '" 'there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate'"' "]; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787 ["Under both federal and California state law, arbitration is a matter of contract between the parties"].) There are, however, "exceptions to the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement." (Westra, at p. 765.) Specifically, courts have recognized" 'six theories by which a nonsignatory may compel arbitration or be bound to arbitrate: '(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary." '" (Benaroya, at p. 469; Suh v. Superior Court (2010) 181 Cal.app.4th 1504, 1513.)⁷

7 Because we conclude plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants, we do not consider the Lindsey defendants' alternative new claims, raised for the first time in their opening brief, that they are entitled to enforce the arbitration provisions of the 2012 and 2018 agreements based on the agency and alter ego allegations of the complaint. (See Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418; Barsigian v. Kessler & Kessler (2013) 215 Cal.App.4th 446, 449-453; Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1284-1286.)

Under the equitable estoppel doctrine," 'a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are"' "intimately founded in and intertwined" with the underlying contract obligations'" of the signatories to the agreement containing the arbitration clause. (Jones v. Jackson (2011) 195 Cal.App.4th 1, 20 (Jones); JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1239.) "The doctrine applies where the claims are '"' based on the same facts and are inherently inseparable"' from the [signatory plaintiff's] arbitrable claims against signatory defendants.'" (Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 786, added italics (Garcia).) "This requirement comports with, and indeed derives from, the very purposes of the [equitable estoppel] doctrine: to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement." (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 221 (Goldman).)

"By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. [Citations.]" (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271-272 (Boucher).) Equitable estoppel thus "prevents a party from playing fast and loose with its commitment to arbitrate, honoring it when advantageous and circumventing it to gain undue advantage." (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1714; Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828, 830 [equitable estoppel "applies to prevent parties from trifling with their contractual obligations"].) "Application of the [equitable estoppel] doctrine in a proper case is not unfair to signatory plaintiffs resisting arbitration: Not only have such plaintiffs 'decided the theories on which to sue' the nonsignatory, they also have 'consented to arbitrate the claims against [the signatory defendant] anyway.'" (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 715 (Molecular); Rowe v. Exline, supra, 153 Cal.App.4th at p. 1289-1290 [accord].)

Application of the equitable estoppel doctrine "does not require a conscious or subjective intent to avoid arbitration, but turns upon the nexus between the contract and the causes of action asserted.' [Citation.] 'The focus is on the nature of the claims asserted by the plaintiff against the nonsignatory defendant.' [Citation.] 'Claims that rely upon, make reference to, or are intertwined with claims under the subject contract are arbitrable.'" (Molecular, supra, 186 Cal.App.4th at p 715, added italics.) "That the claims are cast in tort rather than contract does not avoid the arbitration clause." (Boucher, supra, 217 Cal.App.4th at p. 272.) Claims based on statutory violations are also arbitrable if they are "intertwined" with claims arising under the subject contract. (Garcia, supra, 11 Cal.App.5th at p. 786-787.)

D. Plaintiffs Are Equitably Estoppedfrom Refusing To Arbitrate All of Their Claims Against the Lindsey Defendants

As stated, the Lindsey defendants claim that all of the plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants pursuant to the arbitration provisions of the 2012 and the 2018 agreements. We agree. We first explain why the equitable estoppel doctrine applies to the signatory plaintiffs to the two agreements, the Landsverks. We then explain why the doctrine applies to the five nonsignatory plaintiffs, LFT, LLT, Betaroan, NAVI, and Terry.

1. Equitable Estoppel Applies to the Landsverks' Claims

The allegations of plaintiffs' complaint, together with the uncontroverted terms of the 2012 and 2018 agreements, show that plaintiffs' tort claims against all defendants (for breach of fiduciary duty, financial elder abuse, common law fraud, professional negligence, and constructive fraud) are"' "intimately founded in and intertwined" with the underlying contractual obligations'" of LFGFOS and LFI to provide financial planning services to the Landsverks pursuant to the 2012 and 2018 agreements. (Jones, supra, 195 Cal.App.4th at p, 20.) That is, the claims are" '" 'based on the same facts and are inherently inseparable'" '" from the Landsverks' contractually arbitrable claims against LFI pursuant to the arbitration provision of the 2018 agreement. (Garcia, supra, 11 Cal.App.5th at p. 786.) There are several reasons for our conclusion.

First, plaintiffs do not dispute the authenticity of the 2012 and 2018 agreements. Second, in their opposition to the Lindsey defendants' motion, plaintiffs admit that the Landsverks "decided to retain the Lindsey defendants' services in our around December 2011" and "renewed their services on or about March 13, 2018." (Added italics.) These dates coincide with the signing of the 2012 agreement in March 2012 and the signing of the 2018 agreement on March 13, 2018. Thus, the admission shows that plaintiffs worked with all of the Lindsey defendants and under the auspices of the 2012 and 2018 agreements.

Third, the arbitration clauses of the two agreements are broadly worded and allencompassing. Each requires "[a]ny controversy arising out of or relating to [the] [a]greement" to be settled by arbitration as stated in the agreement."' It has long been the rule in California that a broadly worded arbitration clause, such as we have here, may extend to tort claims that may arise under or from the contractual relationship.'" (Garcia, supra, 11 Cal.App.5th at p. 786.) A broadly worded arbitration clause may also extend to claims based on statutory violations. (See Id. at pp. 786-787; Boucher, supra, 127 Cal.App.4th at pp. 272-273.)

Fourth, the entire record shows that plaintiffs' tort claims against all defendants "arise out of and relate to" the financial planning services that Lindsey, through LFGFOS, LFI, the other Lindsey defendants (Jeremy, LFGI, LFIS, and Blue Sky), and the non-Lindsey defendants (Pearson, Nepsis, and NOFI), provided to the Landsverks and the other plaintiffs (LLT, LLT, Betaroan, NAVI, and Terry) between late 2011 and early 2019, as contemplated in the 2012 and 2018 agreements. The complaint alleges Lindsey was the Landsverks' "registered investment advisor, financial consultant, and estate planner from December 2011 to approximately Spring of 2019." During this period, Lindsey and "Lindsey Entities" (LFI, LFGI, and LFIS) "use[d] their role[s] as fiduciaries to manipulate and direct the Landsverks into making detrimental financial decisions" and "to consent to having multiple third-parties involved in their financial, estate, and tax plans." "Lindsey convinced the Landsverks to allow Meyer, Pearson, Jeremy, Nepsis, Blue Sky, and NOFI to all have critical roles and substantial involvement" in the Landsverks' "affairs."

The complaint also details each defendant's involvement in the financial planning services defendants provided to the Landsverks between 2011 and early 2019: the nocash charitable contribution plan, high-risk securities plan, and private money loan plan. The complaint shows that these three plans were part of the financial planning services that the Landsverks purchased from defendants, through LFGFOS and LFI, pursuant to and as contemplated in the 2012 and 2018 agreements. All of plaintiffs' claims against defendants are based on the damages plaintiffs claim they incurred as a result of implementing the three financial plans.

For of these reasons, the Landsverks are equitably estopped from refusing to arbitrate their five alleged tort causes of action against all of the Lindsey defendants. All of the plaintiffs' tort causes of action against all of the defendants are"' "intimately founded in and intertwined" with the underlying contract obligations'" of the signatories to the 2012 and 2018 agreements, LFGFOS, and LFI, to provide financial planning services to the Landsverks. (Jones, supra, 195 Cal.App.4th at p. 20.) That is, plaintiffs' tort claims are" '" 'based on the same facts and are inherently inseparable" '"' from the Landsverks' contractually arbitrable claims against LFGFOS and LFI, under the 2012 and 2018 agreements. (Garcia, supra, 11 Cal.App.5th at p. 786.)

2. Equitable Estoppel Applies to the Nonsignatory Plaintiffs' Claims

The allegations of the complaint also show that the Landsverks own and control each nonsignatory plaintiff to the 2012 or 2018 agreements, LFT, LLT, Betaroan, NAVI, and Terry, and that the Landsverks used these plaintiffs to implement the complained-of financial plans that defendants persuaded the Landsverks to adopt between late 2011 and early 2019. As the Lindsey defendants point out, the nonsignatory plaintiffs are "legal entities" and "vessels in which allegedly improper investments (recommended by the Lindsey Entities) [and the other defendants] were held." Thus, the nonsignatory plaintiffs' claims against the Lindsey defendants are dependent upon and derivative of the Landsverk's claims against all the defendants. (Goldman, supra, 173 Cal.App.4th at pp. 217-218 ["the sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is that the claims the plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause"].) For this reason, the nonsignatory plaintiffs are also equitably estopped from refusing to arbitrate their claims against the Lindsey defendants.

3. Plaintiffs' Arguments

Plaintiffs argue that the equitable estoppel doctrine does not apply to their claims against the nonsignatory Lindsey defendants because none of the claims are "inextricably bound up with the obligations created by the 2012 and 2018 agreements." (Added italics.) Although "plaintiffs recognize that arbitration is not avoided solely because their claims are cast in tort rather than contract," (Garcia, supra, 11 Cal.App.5th at pp. 786787), plaintiffs stress that their claims are based on common and statutory law, not the contractual obligations of the signatories to the 2012 and 2018 agreements. Relying on Goldman, plaintiffs argue their claims are not "dependent upon, or founded in and inextricably intertwined with" the obligations of the parties to the 2012 and 2018 agreements. (Goldman, supra, 173 Cal.App.4th at pp, 217-218.)

In Goldman, several plaintiff investors sued an accounting firm, a law firm, a registered investment advisor, and others for breach of fiduciary duty and fraud-related claims arising out of an allegedly fraudulent tax shelter scheme. (Goldman, supra, 173 Cal.App.4th at pp. 214-217.) One of the schemes involved the formation of limited liability companies, with "standard operating agreements containing broad arbitration clauses." (Id. at p. 216.) Two of the plaintiffs signed the operating agreements as members of the limited liability companies, but the accounting firm and the law firm did not sign and were not parties to the operating agreements. (Ibid.) As nonsignatories, the accounting firm and the law firm moved to compel arbitration of all of the plaintiffs' claims based on the arbitration clause in the operating agreements. (Ibid.)

Goldman held: "the sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is that the claims the plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause." (Goldman, supra, 173 Cal.App.4th at pp. 217-218, 221, 229-230.) Goldman stressed: "it is the relationship of the claims, not merely the collusive behavior of the signatory and nonsignatory parties, that is key" to determining whether equitable estoppel applies. (Id. at p. 223.) Goldman concluded the equitable estoppel doctrine did not apply to the plaintiffs' claims against the nonsignatory accounting firm and law firm, because the claims (1) did "not rely on or depend on the terms of the operating agreements," and (2) none of the allegations against the nonsignatories were "in any way founded in or bound up with the terms or obligations in the operating agreements." (Id. at p. 230.) Instead, the plaintiffs' allegations "depend[ed] solely on the actions of [the accounting firm and law firm], not on the terms of the operating agreements, for their success." (Ibid.) The accounting firm and law firm could not cite "a single term or obligation in the operating agreements, that had any bearing on the allegations" the plaintiffs made against the accounting firm and the law firm. (Ibid.) The operating agreements were "merely incidental" to the tax fraud "scheme." (Id. at p. 233.)

Plaintiffs argue that here, as in Goldman, equitable estoppel does not apply because plaintiffs' claims against the Lindsey defendants neither mention. nor in any way rely or depend upon, the 2012 or 2018 agreements. We disagree. In contrast to the plaintiffs' claims in Goldman, which were not "founded in or even tangentially related to any duty, obligation, term or condition imposed by the operating agreements" (Goldman supra, 172 Cal.App.4th at p. 230), plaintiffs' claims against the Lindsey defendants are "founded in and inextricably intertwined with . . . the obligations" of LFGFOS and LFI, under the 2012 and 2018 agreements, to provide a financial plan and other financial planning services to the Landsverks. (Id. at p. 218.) Plaintiffs' claims against all of the defendants are based on the financial planning services that LFGFOS and LFI agreed to provide, and did provide, to the Landsverks, under the terms of the 2012 and 2018 agreements. These obligations included preparing a financial plan for a specified fee, and other financial services and products, for unspecified fees. The entire complaint is based on the financial planning services that all of the defendants provided to the Landsverks between late 2011 and 2019.

Thus, Goldman does not assist plaintiffs' argument. Other cases plaintiffs rely on are similarly distinguishable. (Yeh v. Superior Court (2023) 95 Cal.App.5th 264, 272273, review granted Nov. 15, 2023, S282228; DMS Services, LLC v. Superior Court (Zurich Services Corp.) (2012) 205 Cal.App.4th 1346, 1354-1358; Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128-1133.)

4. Conclusion

In sum, the entire record shows that the nonsignatory plaintiffs' claims against the Lindsey defendants are"' "intimately founded in and intertwined" with the underlying contract obligations'" of the signatories to the 2012 and 2018 agreements, LFGFOS and LFI, to provide financial planning services to the Landsverks pursuant to the agreements. (Jones, supra, 195 Cal.App.4th at p. 20.) That is, the nonsignatory plaintiffs' claims against the Lindsey defendants are," '" 'based on the same facts and are inherently inseparable'" '" from the Landsverks' arbitrable claims against LFI, pursuant to the 2018 agreement, and against LFGFOS pursuant to the 2012 agreement-if plaintiffs had named LFGFOS as a defendant. (Garcia, supra, 11 Cal.App.5th at pp. 786-787.) E. The Third Party Litigation Exception Applies to Plaintiffs' Claims Against the Non Lindsey Defendants, Pearson, Nepsis, and NOFI

Our conclusion that plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants means that plaintiffs and the Lindsey defendants are not third parties to the 2012 and 2018 agreements, for purposes of the third party litigation exception. (§ 1281.2(c); Molecular, supra, 186 Cal.App.4th at p. 706; Daniels v. Sunrise Senior Living, Inc. (2013) 212 Cal.App.4th 674, 679.) But the non-Lindsey defendants, Pearson, Nepsis, and NOFI, are third parties to the agreements. Pearson, Nepsis, and NOFI did not join the Lindsey defendants' motion or file their own motion to compel arbitration, and no party has sought to enforce the arbitration clause of either agreement against them.

The Lindsey defendants claim that even if Pearson, Nepsis, and NOFI are third parties to the 2012 and 2018 agreements, the third party litigation exception (§ 1281.2(c)), does not apply, for three reasons: (1) insufficient evidence supports the trial court's finding that the exception applies; (2) the choice of law provisions of the 2012 and 2018 agreements show the parties intended the procedural provisions of the FAA (9 U.S.C. § 3, 4, 10, 11) to apply to arbitrations conducted under the agreements, in lieu of the California Arbitration Act (Code Civ. Proc., § 1280 et seq. (the CAA), including the third party litigation exception (Code Civ. Proc., § 1281.2(c)); and 3) the substantive provisions of the FAA (9 U.S.C. §§ 1-2), which apply to all arbitration agreements affecting interstate commerce, including the 2012 and 2018 agreements, preempt section 1281.2(c) as a matter of law. For these reasons, the Lindsey defendants claim plaintiffs must be ordered to arbitrate their claims against the Lindsey defendants, even if there is a possibility of conflicting rulings on common questions of law and fact on the arbitrable and nonarbitrable claims. For the reasons we explain, we conclude that the CAA, including the third party litigation exception, applies. (§ 1281.2(c).)

1. Substantial Evidence Shows the Third Party Litigation Exception Applies

As stated, the third party litigation exception applies when three conditions are satisfied: (1) "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party"; (2) the third party action "aris[es] out of the same transaction or series of related transactions" as the action between the parties or signatories to the arbitration agreement; and (3) "there is a possibility of conflicting rulings on a common issue of law or fact" in the arbitrable action and the third party action. (Acquire II, supra, 213 Cal.App.4th at pp. 967-968.) The "primary purpose" of section 1281.2(c) is to "prevent conflicting rulings." (Acquire II, at p. 976.)

Our review of the trial court's determination that section 1281.2(c) applies is de novo because there is no conflicting evidence. (OTO, LLC v. Kho (2019) 8 Cal.5th 111, 126 [" 'Where, as here, the evidence is not in conflict, we review the trial court's denial of arbitration de novo' "].) "[T]he allegations of the parties' pleadings may constitute substantial evidence sufficient to support a trial court's finding that section 1281.2(c) applies." (Acquire II, supra, 213 Cal..App.4th at p. 972.)

Here, the allegations of the complaint and the undisputed terms of the 2012 and 2018 agreements show that all three conditions of the third party litigation exception are satisfied: (1) the Landsverks are parties to the 2012 and 2018 arbitration agreements, and the Landsverks are also parties to the present action against third parties to the agreements, Pearson, Nepsis, and NOFI; (2) the Landsverks' claims against these third party defendants arise out of the same series of related transactions as the Landsverks' claims against parties to the agreements, including LFI; and (3) there is a possibility of conflicting rulings on common issues of law and fact on plaintiffs' arbitrable claims against the Lindsey defendants and plaintiffs' nonarbitrable claims against Pearson, Nepsis, and NOFI. (§ 1281.2(c).)

The second and third conditions are satisfied because plaintiffs allege the same tort causes of action against all defendants, based on the same transactions or series of related transactions arising out of the Landsverk's 2012 and 2018 agreements with LFGLOS and LFI. The complaint seeks to hold each defendant liable in connection with the financial planning advice and services each defendant rendered in connection with the charitable contribution plan, high-risk securities plan, and private money loan plan described in the complaint. The complaint shows that plaintiffs' claims against the Lindsey defendants and the third party defendants, Pearson, Nepsis, and NOFI, involve common questions of law and fact, common witnesses, and overlapping evidence. Thus, there is a possibility of conflicting rulings on the common questions of law and fact in an arbitration against the Lindsey defendants and in this court action the third party defendants.

The Lindsey defendants argue there is "little risk" of inconsistent rulings in an arbitration against the Lindsey defendants and in a trial against the third party defendants. They point out, for example, that the allegations of the complaint show that the now dismissed defendant Meyer and the "Lindsey Entities" "occup[ied] distinct roles with respect to the fraud that Meyer is alleged to have masterminded and perpetrated." Moreover, they argue, "[t]he fact that the Landsverks chose to cast a wide net to include Meyer and NOFI along with the Lindsey Entities does not create the necessary connection to the third party litigation exception. The risk that the Landsverks may not be able to prove up claims against multiple defendants is a general litigation risk. It is not a risk of conflicting rulings on common issues of law or fact such that [section] 1281.2(c) may be invoked."

To be sure, the complaint shows that all of the defendants, with the exception of Lindsey and the "Lindsey Entities" (LFI, LFIS, &LSIS), occupied "distinct roles" in the alleged frauds, whether the defendant was involved in the charitable contribution plan (Lindsey, Lindsey Entities, Meyer, NOFI), the high-risk securities plan (Lindsey, Lindsey Entities, Pearson, Nepsis), or the private money loan plan (Lindsey, Lindsey Entities, Pearson, Jeremy, Blue Sky). But the complaint also shows that plaintiffs' claims against all of the defendants involve common legal and factual questions which will be determined based on much of the same, overlapping evidence.

2. The Choice of Law Provisions Show the Parties Intended the CAA to Apply

The FAA requires courts to enforce arbitration agreements in contracts involving interstate commerce, and the FAA preempts all state laws and rules that conflict with its substantive provisions. (Cronus, supra, 35 Cal.4th at p. 383-384; see 9 U.S.C. § 1 et seq.) The parties do not dispute and the record shows that the 2012 and 2018 agreements involved interstate commerce; thus, the substantive provisions of the FAA apply to the agreements. Section 2 is "the primary substantive provision of the FAA"⁸ (Cronus, at p. 384.) Section 2 "applies in both federal and state courts" and "create[s] a body of federal substantive law of arbitrability." (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334 1350.) Section 2 "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." (Cronus, at p. 384; Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (1982) 460 U.S. 1, 24; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 405.)

8 Section 2 of the FAA provides: "A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2.)

There is, however, "no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability . . . of private agreements to arbitrate." (VoltInv. Scis. v. Bd. of Trs. (1989) 489 U.S. 468, 476, 479 (Volt).) Thus, the FAA allows parties to "specify by contract the rules under which [an] arbitration will be conducted." (Volt, at p 479.) For example, the parties may elect, in a choice of law clause, to have either the CAA or the procedural rules of the FAA govern the enforcement of the parties' arbitration agreement. (Cronus, supra, 35 Cal.4th at p. 384-385, 387; Victrola 89, LLC v. Jaman Properties (2020) 46 Cal.App.5th 337, 345348; Mount Diablo Medical Center v. Health Net of California (2002) 101 Cal.App.4th 711, 717-718 (Mount Diablo).)

The CAA governs enforcement of arbitration agreements (§ 1281 et seq.) and includes the third party litigation exception. (§ 1281.2(c); Cronus, supra, 35 Cal.4th at p. 387.) The procedural rules of the FAA do not include a provision similar to the third party litigation exception. (Acquire II, supra, 213 Cal.App.4th at p. 968; Mount Diablo, supra, 101 Cal.App.4th at p, 717.) If the procedural rules of the FAA apply (9 U.S.C. §§ 3, 4, 10, 11), the court is required to order the parties to arbitration, even if there is a possibility of conflicting rulings on a common issue of law and fact in litigation with a third party not bound by the arbitration agreement. (BioMagic, Inc. v. Dutch Bros. Enters, LLC (C.D. Cal. 2010) 729 F.Supp.2d 1140, 1143 (BioMagic).) "[T]he court's only option in these circumstances is to stay the court proceeding and compel the arbitration." (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1114-1115.)

In California, the CAA governs an arbitration unless a choice of law provision in the parties' agreement expressly incorporates the procedural provisions of the FAA. (Los Angeles Unified School Dist. v. Safety National Casualty Corp. (2017) 13 Cal.App.5th 471, 482; Vitrola 89, LLC, supra, 46 Cal.App.5th at p. 345; Avila v Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 840-841; Judge v Nijjar Realty, Inc. (2014) 232 Cal.App.4th 619, 631; Valencia v. Smyth (2010) 185 Cal.App.4th 153, 173174, 179-180.) The CAA also applies by default if the agreement is silent on the choice of law. (Judge, at p. 631; see Avila, at pp. 840-841.)

We review de novo the trial court's interpretation of an arbitration agreement, including whether federal or state law applies, when the interpretation does not involve conflicting extrinsic evidence. (Nixon v AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, 946.) Here, the parties do not dispute the terms of the 2012 and 2018 agreements; thus, we interpret the agreements de novo.

The choice of law provisions of the two agreements are substantially the same. The 2012 agreement states: "California law shall govern the interpretation and enforcement of this agreement", while the 2018 agreement states: "California law, and specifically the Local Rules of Court of the Superior Court of California County of San Bernardino, shall govern the interpretation and enforcement of this agreement." Neither agreement expressly incorporates the procedural provisions of the FAA. (9 U.S.C. §§ 3, 4, 10, 11.) Thus, under established decisional law, the procedural provisions of the FAA (9 U.S.C.) do not apply; rather the choice of law provisions show that the parties intended the CAA and section 1281.2(c) to apply. (Cronus, supra, 35 Cal.4th at pp. 387, 394; Victrola 89, LLC v. Jaman Properties, supra, 46 Cal.App.5th at p. 345; Los Angeles Unified School Dist. v. Safety National Casualty Corp., supra, 13 Cal.App.5th at pp. 480482.)

In Cronus, our Supreme Court recognized that, when, as here, the choice of law clause of an agreement provides that California law shall govern the enforcement of the agreement, it is reasonable to conclude that the parties intended the CAA and section 1281.2(c) to apply to any arbitration conducted under the agreement. (Cronus, supra, 35 Cal.4th at p. 387; Mount Diablo, supra, 101 Cal.App.4th at pp. 722-723.) Adopting the reasoning of Mount Diablo, Cronus explained that, even when a choice of law clause is"' "generic" in the sense that it does not mention arbitration or any other specific issue that might become a subject of controversy,'" if the clause is nonetheless"' broad, unqualified and all-encompassing,'" then" '[t]he explicit reference to enforcement reasonably includes such matters as whether proceedings to enforce the agreement shall occur in court or before an arbitrator. Chapter 2 (in which § 1281.2 appears) of title 9 of part III of the California Code of Civil Procedure is captioned "Enforcement of Arbitration Agreements." An interpretation of the choice of law provision to exclude reference to this chapter would be strained at best.'" (Cronus, at p. 387, quoting Mount Diablo, at p. 722.) Here, too, it would be unreasonable to conclude that the parties to the 2012 and 2018 agreements, in agreeing that "California law" would "govern the enforcement" of the agreement, did not intend that the CAA, including section 1281.2(c), would apply to any arbitration conducted in accordance with the agreements.

The Lindsey defendants claim that the choice of law clause of the 2018 agreement does not show the parties intended to adopt a particular provision of California law, including the CAA or section 1281.2(c). Rather, they claim the clause shows the parties intended to adopt only the local rules of court for the County of San Bernardino, not any other provision of California law. They cite no authority for this interpretation, and it is contrary to Cronus and Mount Diablo. The clause does not limit the application of California law; rather, it is broad and all encompassing. In stating that "California law, and specifically" the local rules of court apply, it emphasizes that the local rules of court apply, but it does not indicate that other California law does not apply. As in Cronus and Mount Diablo, it is reasonable to interpret the clause as incorporating all of California law, including the CAA and section 1281.2(c), insofar as these provisions apply to enforcing the arbitration provisions of the agreement. (Cronus, supra, 35 Cal.4th at p. 387; Mount Diablo, supra, 101 Cal.App.4th at p. 722.)

The Lindsey defendants also claim the 2018 Agreement does not incorporate the CAA because "it incorporates either the FINRA Code of Arbitration Procedure or the Rules of Procedure for Christian Conciliation" (the ICC rules).⁹ On this point, they argue, "it is well established that the incorporation of a specific set of procedures, different from state law procedures[,] does not show an intent to incorporate state procedural rules on arbitration." We disagree, for two reasons.

9 This argument applies with like force to the 2012 agreement. Both agreements required the parties to select the FINRA rules or the ICC rules for arbitrations, and in each agreement the parties selected the ICC rules.

First, the argument assumes there is a conflict between FINRA and ICC rules and section 1281.2, but this is not the case. The FINRA and ICC rules do not conflict with section 1281.2. The rules apply after an arbitration proceeding has commenced, while section 1281.2 addresses whether a motion to compel an arbitration must be denied or stayed before the arbitration proceeding has commenced. (§ 1281.2.)

Second, the Lindsey defendants rely on inapposite case law: Preston v. Ferrer (2008) 552 U.S. 346, 361 (Preston), BioMagic, supra, 729 Cal.App.2d at pp. 1145-1149, and Ware v. Golden 1 Credit Union, Inc. (E.D. Cal. 2019) 375 F.Supp.3d 1145, 1150 (Ware). These cases involved broad choice of law clauses-clauses providing that the parties' agreement, its interpretation, or other issues-but not its enforcement-would be governed by California law. (Preston, at p. 361; BioMagic, at pp. 1147-1148 [distinguishing Cronus as involving "narrower" choice of law clause requiring agreement to be "enforced" in accordance with California law]; Ware at p. 1150; cf. Cronus, supra, 35 Cal.4th at pp. 386-387; Mount Diablo, supra, 101 Cal.App.4th at p. 722.) As we explain, Preston, BioMagic, and Ware are inapposite, and Cronus is controlling.

In Preston, the choice of law clause required "the agreement" to be governed in accordance with California law. (Preston, supra, 552 U.S. at p. 361.) But the arbitration clause more specifically addressed "the matter in controversy"; it provided that, "any dispute . . . relating to . . . the breach, validity or legality" of the agreement was to be arbitrated in accordance with rules of the America Arbitration Association (AAA). (Ibid.) One of the AAA rules vested the arbitrator with "the power to determine the existence or validity of a contract of which an arbitration clause forms a part.' [Citation.]" (Id. at p. 362.) This was consistent with the high court's decision in Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, "which clarified that, when parties agree to arbitrate all disputes arising under their contract, questions concerning the validity of the entire contract are to be resolved by the arbitrator in the first instance, not by a federal or state court." (Preston, at p. 349.) This is required under section 2 of the FAA, the "federal substantive law regarding arbitration." (Ibid.)

The parties in Preston were disputing whether their agreement was valid under the California Talent Agencies Act (TAA) (Lab. Code § 1700 et. seq.; Preston, supra, 552 U.S. at pp. 350-351, 354.) Preston sued Ferrer for fees allegedly due under a contract, which included the arbitration clause. (Preston, at p. 340.) Ferrer claimed the contract was void because the fees were for talent agency services, and Preston was not a licensed talent agent. The TAA requires a talent agent to obtain a license from the Labor Commissioner, and the TAA provides that an unlicensed person's contract to provide talent agency services to an artist is" 'illegal and void.'" (Id. at p. 355.) Preston claimed the TAA did not apply because the fees were for Preston's "personal services," not talent agency services; thus, the contract was valid. (Id. at p. 350-351.)

The TAA also requires parties involved in a dispute governed by the TAA to refer the dispute to the Labor Commissioner for hearing and determination. (Preston, supra, 552 U.S. at pp. 350-351; Lab. Code § 1700.44(a).) The decision is final if not appealed. (Preston, at pp. 35.) The TAA permits arbitration in lieu of proceeding before the Labor Commissioner, but only" 'in a contract between a talent agency and [an artist].'" (Ibid, quoting Lab. Code, §1700.45.) Preston could not avail himself of the arbitration procedure without conceding that he was an unlicensed talent agent, "a point fatal to his claim for compensation." (Preston, at p. 356.) Thus, the arbitration procedure allowed under Labor Code section 1700.45 was "of no utility to Preston." (Preston, at p. 356.)

Preston concluded that the "procedural prescriptions of the TAA thus conflict[ed] with the FAA's dispute resolution regime in two basic respects: First, the TAA, in § 1700.44(a), grants the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate, see Buckeye, 546 U.S., at 446 . . .; second, the TAA, in § 1700.45, imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally. [Citation.]" (Preston, supra, 552 U.S. at p. 356.) Preston reasoned: "A prime objective of an agreement to arbitrate is to achieve 'streamlined proceedings and expeditious results.' [Citations.] Requiring initial reference of the parties' dispute to the Labor Commissioner would, at the least, hinder speedy resolution of the controversy." (Id., at p. 358.) Thus, Preston held that, "when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA." (Preston, supra, 552 U.S. at pp. 349-350.) As applied in Preston, the FAA superseded Labor Code sections 1700.44 and 1700.45.

Preston also concluded that the contract's express incorporation of the AAA rules "trumped the choice-of-law clause," which provided that the contract would be governed by California law, insofar as the choice of law clause would have incorporated the TAA procedural rules. (Preston, supra, 552 U.S. at pp. 361-362.) Preston reasoned: "[t]he incorporation of the AAA rules," and in particular the AAA rule requiring an arbitrator to determine whether the parties' contract was valid, "weigh[ed] against inferring from the choice-of-law clause an understanding shared by [the parties] that their disputes would be heard, in the first instance, by the Labor Commissioner" in accordance with the TAA's procedural rules, Labor Code sections 1700.44 and 1700.45. (Preston, at p. 362.)

Following Mastrobuono v. Shearson Lehman Hutton (1995) 514 U.S. 52, 63-64 (Mastrobuono), Preston reasoned that "the 'best way to harmonize' the parties' adoption of the AAA rules and their selection of California law is to read the latter to encompass prescriptions governing the substantive rights and obligations of the parties, but not the State's 'special rules limiting the authority of arbitrators.'" (Preston, at pp. 361-362.) Thus, Preston did not infer, based on the general choice of law clause providing that California law governed the contract, that the parties intended the conflicting TAA procedural rules to apply over the expressly incorporated AAA rules, particularly when the TAA procedures, if applied in the case, would have violated the FAA's policy favoring enforcement of arbitration agreements, and the Buckeye rule.

Preston does not assist the Lindsey defendants' claim that the incorporation of the FINRA and ICC rules in the 2012 and 2018 agreements means the parties intended not to incorporate the CAA and section 1281.2(c). As we have explained, the FINRA and ICC rules do not conflict with section 1281.2(c). As we have also explained, under California decisional law, the choice of law clauses of the 2012 and 2018 agreements, in providing that California law governs "the enforcement" of the agreements, necessarily incorporate the CAA and section 1281.2 for purposes of any arbitration. (Cronus, supra, 35 Cal.4th at p. 387; Mount Diablo, supra, 101 Cal.App.4th at p. 722.)

Preston differs from this case in three respects: (1) it involved a contract with a general choice of law clause that expressly provided the contract would be "governed" but not "enforced" in accordance with California law; (2) the contract expressly incorporated AAA rules that conflicted with TAA rules that were not expressly incorporated; and (3) applying the TAA rules would have violated the FAA. Here, the 2012 and 2018 agreements have "enforcement" choice of law clauses, the FINRA and ICC rules do not conflict with section 1281.2(c), and the Lindsey defendants have not shown how the application of section 1281.2(c) would violate the FAA's policy of enforcing arbitration agreements. (9 U.S.C. § 2.)

3. The FAA Does Not Preempt Section 1281.2(c)

The Lindsey defendants claim section 2 of the FAA (9 U.S.C. § 2) preempts the third party litigation exception, because section 1281.2(c) is a" 'special rule[] limiting the authority of arbitrators.'" (Preston, supra, 552 U.S. at p. 363; Mastrobuono, supra, 514 US. at p. 63-64.) We disagree. Cronus addressed whether "section 1281.2(c) conflicts with the spirt of the FAA because its application would undermine and frustrate [the FAA's policy of enforcing] arbitration agreements." (Cronus, supra, 35 Cal.4th at pp. 391-394.) Cronus concluded that section 1281.2(c) does not "contravene the substantive goals and policies of the FAA." (See Id. at pp. 387, 393.)

After discussing the United States Supreme Court's decisions in Volt ¹⁰ and Mastrobuono,¹¹ Cronus explained: "[S]ection 1281.2(c) is not a special rule limiting the authority of arbitrators. It is an evenhanded law that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law amongst interrelated parties. Moreover, '[s]ection 1281.2(c) is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California's statutory scheme designed to enforce the parties' arbitration agreements, as the FAA requires. Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement. The California provision giving the court discretion not to enforce the arbitration agreement under such circumstances-in order to avoid potential inconsistency in outcome as well as duplication of effort-does not contravene the letter or the spirit of the FAA. That was the explicit holding in Volt and nothing inMastrobuono casts doubt on that conclusion.'" (Cronus, supra, 35 Cal.4th at pp. 391-393, quoting Mount Diablo, supra, 101 Cal.App.4th at p. 726, added italics.) Thus, Cronus found it unnecessary "to construe any ambiguities as to the scope of the arbitration provision against the application of section 1281.2(c)." (Cronus, at p. 393.) We are bound by Cronus and follow it here. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) Thus, we conclude that where, as here, (1) the parties have incorporated section 1281.2(c) into their agreement, and (2) there is a possibility of conflicting rulings on common issues of law or fact on nonarbitrable claims against third parties, then (3) applying section 1281.2(c) to stay or deny arbitration does not violate the FAA's policy of enforcing arbitration agreements. (Cronus, supra, 35 Cal.4th at pp. 387, 393; Avila, supra, 20 Cal.App.5th at p. 841 [section 1281.2(c) "does not defeat the rights granted by the FAA, and is therefore not preempted"].)

10 In Volt, the high court held that the FAA did not preempt section 1281.2(c), where section 1281.2(c) was applied to stay an arbitration, and the parties had agreed to arbitrate their claims in accordance with California law. (Volt, supra, 489 U.S. at pp. 470, 476-479; see Cronus, supra, 35 Cal.4th at pp. 391-392.) Volt reasoned: "Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the [FAA] would otherwise permit it to go forward. By permitting the courts to 'rigorously enforce' such agreements according to their terms [Citation], we give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind [] the FAA." (Volt, at p. 479.) Preston later explained and distinguished Volt: "[A]rbitration was stayed in Volt to accommodate litigation involving third parties who were strangers to the arbitration agreement. Nothing in the arbitration agreement addressed the order of proceedings when pending litigation with third parties presented the prospect of inconsistent rulings. We thought it proper, in those circumstances, to recognize state law as the gap filler." (Preston, supra, 552 U.S. at p. 361.)

11 In Mastrobuono, the high court interpreted a choice of law clause providing the contract would be governed by New York law as incorporating New York substantive law but not New York arbitration rules, including a New York law prohibiting arbitrators from awarding punitive damages, known as the" 'Garrity rule.'" (Mastrobuono, supra, 514 U.S. at pp. 53, 62-64; see Cronus, supra, 35 Cal.4th at p. 392 and fn. 7.) The high court explained: "We think the best way to harmonize the choice-of-law provision with the arbitration provision is to read 'the laws of the State of New York' to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators." (Mastrobuono, at pp. 63-64.)

We acknowledge that the federal district courts in BioMagic and Ware declined to follow Cronus and instead followed the Ninth Circuit Court of Appeals' contrary decision in Wolsey, Ltd. v. Foodmaker, Inc. (9th Cir. 1998) 144 F.3d 1205, 1211. (BioMagic, supra, 729 F.Supp.2d at pp. 1146-1148; Ware, supra, 375 F.Supp.3d at pp. 1149-1150.) Applying Mastrobuono, Wolsey concluded that the district court erred in applying section 1281.2(c), because the statute" 'assuredly does affect California's allocation of power between alternative tribunals' "; therefore, the statute was a" 'special rule[] limiting the authority of arbitrators.'" (Woolsey, at pp. 1212-1213.) But Cronus expressly declined to follow Wolsey. (Cronus, supra, 35 Cal.4th at p. 393, fn. 8.) And, as we have noted, we are bound by Cronus, not by Wolsey, BioMagic, or Ware. (People v Lopez (2021) 65 Cal.App.5th 484, 496, fn. 10 [California courts are not bound by decisions of the lower federal courts, even on federal questions].)

Lastly, the Lindsey defendants claim the application of section 1281.2(c) in this case was improper under AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333.) Somewhat more specifically, they argue the FAA preempts section 1281.2(c) because section 1281.2(c) "interferes with arbitration." They argue the order denying arbitration based on section 1281.2(c) "violates the FAA and Concepcion" because the ruling is not "rooted in a rule . . . generally applicable to all contracts" but, rather, is based on a rule (§ 1281.2(c)) that "targets arbitration agreements." We are not persuaded. The Lindsey defendants do not explain how section 1281.2(c) is "an obstacle to the accomplishment of the FAA's objectives" (Concepcion, supra, 563 U.S. at p. 351) or how the potential application of the statute, vis-a-vis plaintiffs' claims against third party defendants Pearson, Nepsis, and NOFI, would "interfere with arbitration" or violate the FAA's policy favoring enforcement of arbitration agreements. Therefore, the Lindsey defendants' FAA-preemption claim must fail.

F. The Matter Must be Remanded to the Trial Court to Determine Whether to Deny or Stay Arbitration Between Plaintiffs and the Lindsey Defendants Based on the Third Party Litigation Exception as it Applies to Pearson, Nepsis, and NOFI

In its order denying the Lindsey defendants' motion, the court declined to enforce the arbitration clause of the 2018 agreement against its signatories, the Landsverks and LFI, based on the third party litigation exception. (§ 1281.2(c).) The court found that an arbitration solely between the signatories to the 2018 agreement, the Landsverks and LFI, would "create a risk of conflicting rulings" "given the transactions and number of interrelated parties" in the action. Thus, the court's ruling was based on its conclusion that all of the nonsignatory parties to the 2012 and 2018 agreements-all of the plaintiffs except the Landsverks, and all of the defendants except LFI-were third parties to the agreements for purposes of applying section 1281.2(c).

As noted, we directed the parties to address, in supplemental briefing, whether the trial court has discretion to deny or stay arbitration between plaintiffs and the Lindsey defendants based on the third party litigation exception, assuming (1) plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants, and (2) Pearson, Nepsis, and NOFI are third parties to the arbitration provisions of the 2012 and 2018 agreements. As we have explained, plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants, and Pearson, Nepsis, and NOFI must be considered third parties for purpose of the arbitration between plaintiffs and the Lindsey defendants, given that Pearson, Nepsis, and NOFI did not move to compel arbitration under either agreement, and no other party has sought to enforce the arbitration provisions of either agreement against them.

As we have further explained, all three conditions of the third party litigation exception are satisfied regarding plaintiffs' claims against Pearson, Nepsis, and NOFI. (Acquire II, supra, 213 Cal.App.4th at pp. 967-968.) When, as here, all three conditions of the exception are satisfied, section 1281.2(c) grants the trial court discretion to choose from among four dispositional options: the court may "(1) 'refuse to enforce the arbitration agreement and . . . order intervention or joinder of all parties in a single action or special proceeding'; (2) 'order intervention or joinder as to all or only certain issues'; (3) 'order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding'; and (4) 'stay arbitration pending the outcome of the court action or special proceeding.'" (Acquire II, at p. 968, quoting § 1281.2(c); see Williams v. Atria Las Posas, supra, 24 Cal.App.5th at p. 1054.)

Plaintiffs argue the trial court has discretion to deny or stay arbitration between plaintiffs and the Lindsey defendants because Pearson, Nepsis, and NOFI remain third parties to the agreements. We agree. Pearson, Nepsis, and NOFI must be considered third parties for purposes of these proceedings on the Lindsey defendants' petition to compel arbitration, given that they did not move to compel arbitration and no party sought to enforce the arbitration provisions of the agreements against them. Further, the trial court has discretion to stay or deny arbitration of plaintiffs' arbitrable claims against the Lindsey defendants, in light of the common questions of law and fact involved in plaintiffs' nonarbitrable claims against the third party defendants, Pearson, Nepsis, and NOFI. (See Acquire II, supra, 213 Cal.App.4th at p. 968.)

The Lindsey defendants argue that, "for multiple reasons," the trial court does not have discretion to stay or deny arbitration between plaintiffs and the Lindsey defendants. Again, the Lindsey defendants argue that the CAA and section 1281.2 do not apply because section 2 of the FAA applies. For the reasons explained, we disagree. The Lindsey defendants also argue that "the detailed factual allegations of the Complaint make it incongruous to apply equitable estoppel to the Lindsey [defendants] but not to the remaining non-Lindsey [third party] defendants. They point out that "Plaintiffs allege an integrated fraudulent scheme, at the center of which purportedly sat Mr. Lindsey, pulling the strings. Mr. Lindsey is alleged to have been active in convincing the Landsverks to form the Plaintiffs' LLC entities and divert funds to accounts that Mr. Lindsey controlled along with Pearson and Nepsis. [Citations.] The Defendants . . . including Pearson, Nepsis, and NOFI, had 'critical roles and substantial involvement in [Plaintiffs'] financial affairs.' . . . Plaintiffs also alleged that Mr. Lindsey convinced them to transfer shares and funds from [Betaroan, and Terry] to NOFI" causing NOFI to became a member of Betaroan and Terry.

For these reasons, the Lindsey defendants argue equitable estoppel should also apply to plaintiffs' claims against the third party defendants, Pearson, Nepsis and NOFI. But as explained, Pearson, Nepsis and NOFI did not join the Lindsey defendants' motion, or file their own motion to compel arbitration, and no party has sought to compel plaintiffs, and Pearson, Nepsis and NOFI, to arbitrate plaintiffs' claims against Pearson, Nepsis, and NOFI, along with plaintiffs' claims against the Lindsey defendants. Thus, Pearson, Nepsis and NOFI are third parties to any arbitration between plaintiffs and the Lindsey defendants, for purposes of section 1281.2(c). Given that Pearson, Nepsis, and NOFI remain third parties to the 2012 and 2018 agreements for purposes of applying the third party litigation exception (§ 1281.2(c)), the matter must be remanded to the trial court to determine, in the first instance, whether to deny or stay the Lindsey defendant's motion to compel arbitration of plaintiffs' claims against the Lindsey defendants based on the third party litigation as it applies solely to plaintiffs' claims against Pearson, Nepsis, and NOFI.

IV. DISPOSITION

The April 22, 2022 order denying the Lindsey defendants' motion to compel arbitration of all of plaintiffs' claims against the Lindsey defendants is reversed. The matter is remanded to the superior court with directions to determine the appropriate disposition of this matter under the third party litigation exception. (§ 1281.2(c).) The court must determine whether to deny or stay the Lindsey defendants' motion to compel arbitration of plaintiffs' claims against the Lindsey defendants, based on the third party litigation as it applies solely to plaintiffs' claims against Pearson, Nepsis, and NOFI. All parties will bear their own costs on appeal. (Cal. Rules of Court, rule 8.278.)

We concur: McKINSTER Acting P. J. CODRINGTON J.