Opinion
B199977
7-30-2008
GILLIAN LIPPERT et al., Plaintiffs and Respondents, v. TJR INDUSTRIES, INC., et al., Defendants and Appellants.
Kirtland & Packard, Mark E. Goldsmith, Robert K. Friedl, and Holly M. Brett for Defendants and Appellants. Keith A. Fink & Associates, Keith A. Fink, Sarah E. Hernandez, and Brendan Y. Joy for Plaintiffs and Respondents.
Not to be Published
Defendant and appellant TJR Industries, Inc. (TJR) and plaintiff and respondent PiperEve (PiperEve) are parties to a consulting agreement that contains an arbitration clause. In 2005, TJR terminated its consulting relationship with PiperEve, and PiperEves principal, plaintiff and respondent Gillian Lippert (Lippert) sued TJR under various contract and tort theories. (Hereinafter Lippert and PiperEve are collectively referred to as plaintiffs.) Lippert later amended the complaint to name PiperEve as an additional plaintiff, and TJR petitioned to compel arbitration. We conclude that the trial court abused its discretion by denying the petition, and we reverse.
FACTS AND PROCEDURAL HISTORY
I. The Consulting Services Agreement
In December 2004, TJR and PiperEve entered a "Consulting Services Agreement" (Consulting Agreement) for the period July 1, 2004, through June 30, 2005. The Consulting Agreement provided that PiperEve would provide business development services for TJR and would be paid a commission based upon revenues generated, as well as monthly advances of $7,000. As relevant to the present litigation, it further provided as follows:
Independent contractor status. PiperEve "is an independent contractor and not an employee or agent[] of TJR. Nothing in this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between TJR and [PiperEve] and/or any employee or agent of [PiperEve]."
Termination. "Either Party shall have the right to terminate this Agreement in whole or in part for any reason at any time during the course of [PiperEve]s performance upon thirty (30) days written notice. Upon receipt of any termination notice, [PiperEve] shall immediately discontinue the Services on the date and to the extent specified in the notice. TJRs sole obligation in the event of such termination shall be to pay [PiperEve,] pursuant[] to paragraph 2 above, the amount due for the Services to have been performed through the end of the current effective period of this Agreement."
Arbitration. "All disputes, claims or controversies arising out of or relating to this Agreement with more than $5,000 in controversy shall be submitted to Judicial Arbitration and Mediation Services (`JAMS) in Santa Monica, California, or its successor, for mediation, and if the matter is not resolved through mediation, then it shall be submitted to JAMS in Santa Monica, California, or its successor, for final and binding arbitration. . . . [¶] . . . Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, which has not been resolved through mediation, shall be determined by arbitration at the JAMS office in Santa Monica, California, before a sole arbitrator, in accordance with the laws of the State of California for agreements made in and to be performed in that State. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures if the amount in controversy exceeds $250,000, or pursuant to its Streamlined Arbitration Rules and Procedures if the amount in controversy is $250,000 or less. Judgment on the Award may be entered in any court having jurisdiction. The arbitrator shall, in the Award, allocate all of the costs of the arbitration and the mediation, including the fees of the arbitrator and the reasonable attorneys fees of the prevailing party, against the party who did not prevail. [¶] . . . [T]he parties agree to have all disputes, claims or controversies arising out of or relating to this Agreement, which are not resolved by mediation, decided by neutral binding arbitration as provided in this Agreement, and the parties are giving up any rights [they] might possess to have those matters litigated in a court or [by] jury trial. By initialing in the space below, the Parties [are] giving up [their] judicial rights to discovery and appeal except to the extent that they are specifically provided for under this Agreement. If the parties refuse[] to submit to arbitration after agreeing to this provision, the parties may be compelled to arbitrate under federal or state law."
On July 6, 2005, Lippert and Todd Rosholt, TJRs chief executive officer, signed a letter agreement entitled "Agreement Continuation." It provided that: "[U]ntil and unless a compensation plan and employment agreement is determined and finalized, PiperEves current monthly fee of $7,000 will continue to be remitted in a timely fashion. In addition, PiperEve will be paid commissions commensurate with the past seasons agreement in December 2005 and May 2006, including any and all regional revenue sold in the current absence of all Regional Sales Managers. Should a compensation plan and employment agreement be finalized mid-month, PiperEve will be compensated on a pro-rata basis of $350/day. [¶] Funds will be wire-transferred into PiperEves account on the last business day of the month services are rendered."
On November 23, 2005, TJR terminated its relationship with PiperEve.
II. The Present Action
On November 21, 2006, Lippert filed the present action against TJR for (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) violation of Labor Code sections 201 and 203, (4) wrongful discharge in violation of public policy, and (5) violation of Business and Professions Code section 17200. It alleged that Lippert had been employed by TJR since 2001 and was vice president of business sales at the time of her termination. She "entered into a valid employment agreement (hereinafter `Agreement) with Defendants for the 2004-2005 season," which "was effective from July 1, 2004 to June 30, 2005." On July 6, 2005, "an Agreement Continuation was entered into between Ms. Lippert and TJR," pursuant to which "TJR agreed to continue to compensate Ms. Lippert for the 2005-2006 sale season under the terms of the 2004-2005 Agreement." However, on or about November 23, 2005, "without cause, with no notice and in bad faith, Ms. Lippert was terminated."
Labor Code section 201, subdivision (a) provides in pertinent part: "If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately." Labor Code section 203 provides: "If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.5, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days. An employee who secretes or absents himself or herself to avoid payment to him or her, or who refuses to receive the payment when fully tendered to him or her, including any penalty then accrued under this section, is not entitled to any benefit under this section for the time during which he or she so avoids payment. [¶] Suit may be filed for these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise."
Business and Professions Code section 17200 prohibits "unfair competition," defined as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising."
TJR demurred. It asserted that the only parties to the Consulting Agreement were TJR and PiperEve; thus, because Lippert was not a party to, or a third party beneficiary of, the Consulting Agreement, she had no standing to sue for alleged breaches of the agreement or the implied covenant of good faith and fair dealing. Further, because the Consulting Agreement provided that PiperEve was an independent contractor, not an employee, Lippert had no standing to sue for alleged Labor Code violations, alleged wrongful discharge from employment, or an alleged violation of Business and Professions Code section 17200.
When it filed its demurrer, TJR also served form and special interrogatories and a request for production of documents. Lippert opposed the demurrer and served objections and responses to TJRs discovery requests.
Prior to the demurrer hearing, Lippert filed a first amended complaint that added PiperEve as a plaintiff, added individual defendants, added a new cause of action for intentional infliction of emotional distress, and amended some of the complaints allegations. Among other things, the first amended complaint alleged:
The first amended complaint added Wayne Hammack, TJRs president and chief executive officer, and Cody McGarraugh, TJRs chief financial officer, as individual defendants. Throughout this opinion, we refer to TJR, Hammack, and McGarraugh collectively as "TJR."
"15. Plaintiffs entered into a valid employment agreement (hereinafter `Agreement) with TJR for the 2004-2005 season. (A true and correct copy of the Agreement is attached hereto as Exhibit A.) The Agreement was effective from July 1, 2004 to June 30, 2005. . . .
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"17. On July 6, 2005, after considering Lipperts compensation, an agreement to continue to compensate Lippert for the 2005-2006 season under the same terms as the agreement which expired as of the end of the 2004-2005 season, was memorialized in writing. (A true and correct copy of the continuation agreement is attached hereto as Exhibit B.) Consequently, they agreed she would be compensated in accordance with the employment agreement for the 2004-2005 season.
The Consulting Agreement was attached as exhibit A, and the Agreement Continuation was attached as exhibit B.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"20. . . . [O]n or about November 23, 2005, Lippert was terminated from her employment. . . .
"21. Pursuant to the Agreement, `TJRs sole obligation in the event of such termination shall be to pay Consultant . . . the amount due for the Services to have been performed through the end of the current effective period. As of November 1, 2005, Plaintiffs brought in approximately $3,517,329.00 in revenue for TJR. Upon termination, Plaintiffs were owed approximately $ 181,732.90 in commissions, however, Plaintiffs [were] only paid $35,000.00. In accordance with the contract terms, Plaintiffs were owed compensation through the end of the season period, June 2006. Thus, Plaintiffs are[] owed in addition to $146,732.90 in commissions, approximately $200,000 in commissions for the entire 2005-2006 season.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"27. The Agreement represents a valid and binding contract the terms of which are definite and enforceable.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"29. . . . TJR failed to compensate Plaintiffs for all wages and/or commissions earned pursuant to the Agreement. . . ."
III. TJRs Motion to Compel Arbitration
TJR filed a motion to compel arbitration on May 15, 2007. It asserted that the Consulting Agreement, which plaintiffs alleged was breached, contained a clause requiring arbitration of disputes that may arise "out of or relating to this Agreement." TJR asserted that plaintiffs claims were within the terms of the arbitration provision and, thus, plaintiffs should be compelled to arbitrate.
Plaintiffs opposed the petition. They asserted that the Consulting Agreement, including its arbitration provision, expired on June 30, 2005, and was not renewed. Further, plaintiffs contended that defendants had waived their right to compel arbitration by engaging in discovery; the arbitration agreement was unenforceable because it was substantively and procedurally unconscionable; plaintiffs claim under Business and Professions Code section 17200 was not arbitrable; and Lippert was not a party to the Consulting Agreement or the Agreement Continuation and, thus, could not be bound by its terms.
The trial court denied the petition to compel. Its minute order states: "The court finds that the arbitration agreement has expired. Even if the agreement has not expired, the court finds that the defendants have waived their right to arbitrate."
TJR filed this timely appeal on June 14, 2007.
DISCUSSION
TJR makes two primary contentions on appeal: (1) the trial court erred as a matter of law by concluding that the present dispute is not arbitrable; and (2) the trial court abused its discretion in finding that TJR waived the right to arbitrate this dispute. Plaintiffs disagree and contend that: (1) the courts order denying arbitration was not an abuse of discretion; (2) the arbitration agreement is unconscionable; and (3) even if PiperEves claims are subject to arbitration, Lipperts claims are not.
I. Arbitrability of Plaintiffs Claims
A. General Principles
Petitions to compel arbitration are governed by Code of Civil Procedure section 1281.2. That section provides, in material part: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that . . . [t]he right to compel arbitration has been waived by the petitioner."
Further undesignated statutory references are to the Code of Civil Procedure.
"`"The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. [Citations.]" (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) (Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 789.)" (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) To carry out its statutory duty under section 1281.2, therefore, "[t]he trial court must determine in advance whether there is a duty to arbitrate the controversy. (Parker v. Twentieth Century-Fox Film Corp. (1981) 118 Cal.App.3d 895, 904.)" (Green v. Mt. Diablo Hospital Dist. (1989) 207 Cal.App.3d 63, 69.) "`This determination "necessarily requires the court to examine and, to a limited extent, construe the underlying agreement." (Green v. Mt. Diablo Hospital Dist.[, supra,] 207 Cal.App.3d 63, 69.)" (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 770-771 (Gravillis)).
In interpreting an arbitration agreement, "`"[t]he court should attempt to give effect to the parties intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made." . . . Because California has a "`strong public policy in favor of arbitration" . . ., ". . . arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question" . . . . "Doubts as to whether an arbitration [provision] applies to a particular dispute are to be resolved in favor of sending the parties to arbitration." . . . (Vianna v. Doctors Management Co. (1994) 27 Cal.App.4th 1186, 1189, citations omitted; accord, Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25 [superseded by statute on other grounds as stated in Bradford-Scott Data Corp. v. Physician Computer Network, Inc. (7th Cir. 1997) 128 F.3d 504, 506].)" (Gravillis, supra, 143 Cal.App.4th at p. 771.) However, "`[t]he policy in favor of arbitration does not apply when the contract cannot be interpreted in favor of arbitration. There is no policy in favor of arbitrating a dispute the parties did not agree to arbitrate. (Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1527-1528, citations omitted.)" (Gravillis, supra, at p. 772.)
"The interpretation of an arbitration provision `is solely a judicial function unless it turns upon the credibility of extrinsic evidence; accordingly, an appellate court is not bound by a trial courts construction of a contract based solely upon the terms of the instrument without the aid of evidence. (Merrick v. Writers Guild of America, West, Inc. (1982) 130 Cal.App.3d 212, 217; accord, Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.)" (Gravillis, supra, 143 Cal.App.4th at p. 771.) However, if the trial courts construction of a contract is based upon its resolution of disputed extrinsic evidence, an appellate court will uphold the trial courts resolution of disputed facts if supported by substantial evidence. (Giuliano v. Inland Empire Personnel, Inc., supra, 149 Cal.App.4th at p. 1284.)
B. The Arbitration Agreement Gives the Arbitrator, Not the Court, the Authority to Determine Threshold Issues of Arbitrability
The threshold question for our determination is whether the trial court had the authority to decide arbitrability (that is, whether the present dispute is subject to arbitration), or whether that question instead should have been referred to an arbitrator for decision. TJR urges that the arbitration agreement plainly reserves arbitrability for the arbitrator, and thus "once the court . . . examined the arbitration provisions and determined they were of the `broad variety, there was nothing more for the court to do but grant the motion to compel arbitration." Plaintiffs disagree, contending that the question whether the parties agreed to arbitrate must be determined by the court.
The parties do not discuss whether federal or state law governs our determination of arbitrability. However, since "California law is consistent with federal law on the question of who decides disputes over arbitrability" (Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 553 (Dream Theater)), we need not reach that question.
Arbitrability "is an ambiguous term" (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1286-1287) that encompasses at least two distinct concepts: (1) whether an alleged arbitration agreement is valid, and (2) whether the agreements scope is sufficiently broad to cover the dispute at issue. The first issue—validity—unquestionably is an issue for the court. Our Supreme Court has said: "[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable." (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413; see also Bruni v. Didion, supra, 160 Cal.App.4th at p. 1287 ["If (the party resisting arbitration) is claiming that it never agreed to the arbitration clause at all—e.g., if it is claiming forgery or fraud in the factum—then the court must consider that claim"], italics added.)
The second issue—scope—also is a question for judicial determination "`[u]nless the parties clearly and unmistakably provide otherwise." (Dream Theater, supra, 124 Cal.App.4th at pp. 552-553, citing AT & T Technologies v. Communications Workers (1986) 475 U.S. 643, 649; see also Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 83 ["The question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability, is `an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise"].)
It is undisputed in the present case that the parties entered into a valid arbitration agreement. That is, while plaintiffs challenge the applicability of the Consulting Agreements arbitration clause to the present case, they do not dispute that the Consulting Agreement contained a valid arbitration clause that governed some class of disputes between the parties. The real question before us, therefore, is whether the parties dispute about the scope of the arbitration agreement was properly resolved by the trial court or, instead, should have been referred to the arbitrator.
Plaintiffs contention that there was no valid agreement to arbitrate because the Consulting Agreement "terminated" or "expired" before the present dispute arose confuses the two separate questions of the existence and scope of the arbitration agreement. In other words, plaintiffs contention that the arbitration agreement expired before the present dispute arose raises a significant issue, but that issue is one of scope (whether the agreement covers this dispute), not validity (whether the agreement covers any dispute).
As we have said, the question of the scope of an arbitration agreement—that is, whether an arbitration agreement binds parties in a present case—is a question for judicial determination "`[u]nless the parties clearly and unmistakably provide otherwise." (Dream Theater, supra, 124 Cal.App.4th at pp. 552-553, citing AT & T Technologies v. Communications Workers, supra, 475 U.S. 643, 649; Howsam v. Dean Witter Reynolds, supra, 537 U.S. at p. 83.) We must decide, therefore, whether the Consulting Agreement shows a "clear and unmistakable" intent to delegate arbitrability decisions to an arbitrator. This question does not depend upon the interpretation of extrinsic evidence, and thus we consider it de novo.
Plaintiffs contend that a substantial evidence standard of review applies because the trial court considered conflicting extrinsic evidence to interpret the arbitration provisions of the Consulting Services Agreement. We do not agree. The extrinsic evidence on which plaintiffs rely are the declarations of Lippert and Todd Rosholt. Both declarations state that when Lippert and TJR entered the continuation agreement on July 6, 2005, they "had an understanding that neither party would arbitrate any disputes between one another." This testimony goes to the application of the arbitration agreement, not its existence; thus, for the reasons stated above, it may be relevant to the issues to be decided by the arbitrator, but is irrelevant to our inquiry here.
This division recently considered whether an arbitration agreement "clearly and unmistakably" delegated arbitrability decisions to the arbitrator in Dream Theater, supra, 124 Cal.App.4th 547. There, buyers and sellers of an internet-based company entered an asset purchase agreement that contained an arbitration clause. Among other things, the arbitration clause said that disputes would be resolved by arbitration conducted in accordance with the rules of the American Arbitration Association (AAA). Those rules provided that the arbitrator "`shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." (Id. at p. 550.)
After the sale was completed, a dispute arose and the buyers demanded arbitration. (Dream Theater, supra, 124 Cal.App.4th at p. 551.) The trial court concluded that the claim was not arbitrable and granted the sellers motion to stay arbitration. (Id. at p. 552.) We reversed. We noted that under California law, the question of the scope of an arbitration agreement was presumptively for the court "`[u]nless the parties clearly and unmistakably provide otherwise." (Id. at p. 553.) We held that by providing that arbitration was to be conducted in accordance with AAA rules, the parties had clearly and unmistakably provided that disputes about arbitrability were to be resolved by the arbitrator, not the court. "It is difficult to imagine how parties could state any more comprehensively than they did in the Contract the intent to avoid litigation at every step of the dispute resolution process. The Contract provides that if a contested claim is not settled within the contractual deadline, then it must be submitted to binding arbitration in accordance with the AAA Commercial Arbitration Rules. These rules specify that the arbitrator will decide disputes over the scope of the arbitration agreement. We conclude that the parties agreement to arbitrate according to this rule is clear and unmistakable evidence of the intent that the arbitrator will decide whether a Contested Claim is arbitrable." (Id. at p. 557.) Thus, we ordered the trial court to stay the action pending the arbitrators determination of arbitrability. (Id. at p. 557.)
The court considered a similar question of arbitrability in Qualcomm Inc. v. Nokia Corp. (Fed.Cir. 2006) 466 F.3d 1366. There, the parties arbitration agreement incorporated the rules of the American Arbitration Association (AAA) as follows: "`Any dispute, claim or controversy arising out of or relating to this Agreement, or the breach or validity hereof, shall be settled by arbitration in accordance with the arbitration rules of the American Arbitration Association (the "AAA Rules")." (Id. at pp. 1372-1373.) Those rules provided that "`[t]he tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." (Id. at p. 1373.) The court concluded that this language "clearly and unmistakably shows the parties intent to delegate the issue of determining arbitrability to an arbitrator"; thus, the question of arbitrability should be referred to the arbitrator unless the trial court determined that defendants arbitrability claim was "`wholly groundless." (Id. at pp. 1373-1375.)
The present case is indistinguishable from Dream Theater and Qualcomm. Here, the Consulting Agreement says that "Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, which has not been resolved by mediation, shall be determined by arbitration . . . ." (Italics added.) It further says that if, as here, the amount in controversy exceeds $250,000, arbitration "shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures." Those rules provide that "[j]urisdictional and arbitrability disputes, including disputes over the existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter." (JAMS Comprehensive Rules & Procedures (JAMS rules), rule 11(c).)
The Consulting Agreements arbitration provisions thus provide—not once, but twice—that the arbitrator shall determine the scope and applicability of the agreement to arbitrate. As in Dream Theater, "[i]t is difficult to imagine how parties could state any more comprehensively than they did" their intent to give the arbitrator jurisdiction over arbitrability determinations. (124 Cal.App.4th at p. 557.) We thus conclude that the trial court erred in reaching the merits of the arbitrability dispute.
II. Waiver
Our determination that arbitrability is to be decided by the arbitrator does not end our inquiry. In addition, we must decide whether substantial evidence supports the trial courts conclusion that TJR waived the right to arbitrate. We conclude that the trial courts conclusion is not supported by substantial evidence.
A party to an arbitration agreement may, by its conduct, waive the right to compel arbitration. (Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1194 (Groom).) "There is no single test for the type of conduct which may waive arbitration rights, but the conduct must have caused prejudice to the opposing party." (Ibid.) "The California Supreme Court has summarized: `We have stressed the significance of the presence or absence of prejudice. . . . ". . . [M]ere delay in seeking a stay of the proceedings without some resultant prejudice to a party . . . cannot carry the day." (Keating v. Superior Court (1982) 31 Cal.3d 584, 605-606, citations omitted, overruled on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1.)" (Groom, supra, 82 Cal.App.4th at p. 1194.)
"[A]lthough often phrased in terms of `waiver, `the critical issue . . . [in the context of loss of arbitration rights is] "whether a partys filing of a lawsuit in the face of an agreement to arbitrate was conduct so inconsistent with the exercise of the right to arbitration as to constitute an abandonment of that right." [Citation.] (Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1201 (St. Agnes); see also Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315 [decisions concerning loss of arbitration rights `use the word "waiver" in the sense of the loss or forfeiture of a right resulting from failure to perform a required act].)" (Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1093, fn. 14.)
"Prejudice in the context of waiver of the right to compel arbitration normally means some impairment of the other partys ability to participate in arbitration." (Id. at p. 1197.) "For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other sides case that could not have been gained in arbitration [citations]; where a party unduly delayed and waited until the eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning partys attempts to litigate resulted in lost evidence [citation]." (Saint Agnes, supra, 31 Cal.4th at p. 1204.)
"[W]aivers [of the right to arbitrate] are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof." (St. Agnes, supra, 31 Cal.4th at p. 1195.) "Generally, the determination of waiver is a question of fact, and the trial courts finding, if supported by sufficient evidence, is binding on the appellate court. (Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 319; see also Engalla [v. Permanente Medical Group, Inc. (1997)] 15 Cal.4th [951,] 983.) `When, however, the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial courts ruling. (Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 319.)" (Saint Agnes, supra, 31 Cal.4th at p. 1196.)
Plaintiffs suggest at least two ways in which they were prejudiced by TJRs nearly six-month delay in moving to compel arbitration: (1) they "were forced to reveal their litigation strategies" when they opposed TJRs demurrer and responded to its discovery requests; and (2) they "took two depositions . . ., filed five discovery motions, [and] opposed two of TJRs motions to compel." We conclude that none of these actions is sufficiently prejudicial to constitute a waiver of TJRs right to compel arbitration.
We note PiperEve could not have been prejudiced by defendants use of the discovery process, as all discovery was conducted prior to PiperEves entry into this lawsuit.
This division has recently concluded that opposing a demurrer does not constitute prejudice in the context of waiver of the right to compel arbitration. We explained in Groom v. Health Net, supra, 82 Cal.App.4th 1189, "Merely being forced to articulate a legal theory clear enough to withstand a demurrer is not in our opinion prejudice of which [plaintiff] may complain. . . . The demurrer process forced [plaintiff] to clarify the nature of her claims and the parties against whom those claims were made, and to reveal the existence of the arbitration agreement. This is not prejudice to [plaintiff], it is a result that she could have avoided by more clear pleading in the first instance." (Id. at pp. 1196-1197.)
Further, there is no substantial evidence that plaintiffs were prejudiced by their responses to TJRs discovery requests. A partys use of judicial discovery procedures to obtain an opponents strategies, evidence, theories or defenses can be prejudicial, but only where the information revealed or documents produced would not be discoverable in arbitration. (Groom, supra, 82 Cal.App.4th at p. 1196; see also Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 215 ["The vice involved here . . . is that defendants used the discovery processes of the court to gain information about plaintiffs case which defendants could not have gained in arbitration"].) For example, in Davis v. Continental Airlines, Inc., supra, 59 Cal.App.4th at pages 208, 215, prior to seeking a stay or petitioning to compel arbitration, defendants "served plaintiff with a discovery demand for, and obtained . . ., documents in 86 categories totaling 1,600 pages and took plaintiffs videotaped deposition for 2 days," thus gaining information that defendants "could not have gained in arbitration." Similarly, in Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558, through defendants use of the discovery process, plaintiff "disclosed at least some of its trial tactics . . ., certainly more so than would have been required in the arbitral arena."
In the present case, substantial evidence does not support the conclusion that by responding to TJRs discovery requests plaintiffs revealed any information or produced any documents to which TJR would not have been entitled in arbitration. Under rule 17 of the JAMS rules, immediately after commencing arbitration, parties must exchange "all non-privileged documents and other information relevant to the dispute or claim." Such documents and information include, without limitation, "copies of all documents in their possession or control on which they rely in support of their positions, names of individuals whom they may call as witnesses at the Arbitration Hearing, and names of all experts who may be called to testify at the Arbitration Hearing, together with each experts report that may be introduced at the Arbitration Hearing." Further, each party may take at least one deposition of an opposing party or of an individual under the opposing partys control, and the arbitrator may authorize additional depositions if appropriate "based upon the reasonable need for the requested information, the availability of other discovery options and the burdensomeness of the request on the opposing Parties and the witness." Finally, "As they become aware of new documents or information, including experts who may be called upon to testify, all Parties continue to be obligated to provide relevant, non-privileged documents, to supplement their identification of witnesses and experts and to honor any informal agreements or understandings between the Parties regarding documents or information to be exchanged."
Here, although TJR requested production of 28 categories of documents, plaintiffs objected to all of TJRs requests and apparently produced documents responsive to only two requests. Plaintiffs have not provided us with copies of those documents; further, they do not suggest that they produced any document that is not "relevant to the dispute or claim" and, thus, would not be encompassed by JAMS rule 17. Similarly, although TJR propounded both form and special interrogatories, plaintiffs provided substantive responses to very few, and they have not made a showing that the limited information they provided in interrogatory responses would not have been required by JAMS rule 17.
Finally, plaintiffs suggest that they suffered prejudice because they filed a first amended complaint, took two depositions, and propounded discovery on TJR. We are aware of no authority—and plaintiffs do not cite us to any—for the proposition that obtaining discovery from an opponent is the kind of prejudice of which a party opposing arbitration may complain. Further, while their participation in discovery undoubtedly caused plaintiffs to incur court legal fees and costs, the mere fact that the opposing party has incurred some litigation expense before the arbitration right is claimed is not a sufficient form of prejudice. (Saint Agnes, supra, 31 Cal.4th at p. 1203; Groom, supra, 82 Cal.App.4th at p. 1197.)
Although waiver is a question of fact tested on appeal under the substantial evidence rule, we find there is no substantial evidence that plaintiffs suffered prejudice as a result of TJRs delay in seeking arbitration. Therefore, the trial court erred in finding waiver. (Groom, supra, 82 Cal.App.4th at p. 1198.)
III. Unconscionability
Plaintiffs contend that the arbitration agreement is unenforceable because it is substantively and procedurally unconscionable. Specifically, they urge that the agreement is unreasonably one-sided and fails to meet any of the five procedural requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz). For the reasons that follow, we disagree and conclude that the arbitration agreement is neither substantively nor procedurally unconscionable.
Under California law, unconscionability has both a procedural and substantive element. The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, "`"which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it."" (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071, quoting Armendariz, supra, 24 Cal.4th at p. 113.) Substantively unconscionable terms may take various forms, "but may generally be described as unfairly one-sided." (Little v. Auto Stiegler, Inc., supra, at p. 1071.) "Although parties may justify an asymmetrical arbitration agreement when there is a `legitimate commercial need (Armendariz, supra, 24 Cal.4th at p. 117), that need must be `other than the employers desire to maximize its advantage in the arbitration process. (Id. at p. 120.)" (Little v. Auto Stiegler, Inc., supra, at p. 1073.) Unconscionability of an arbitration agreement is a matter of law subject to de novo review where, as here, no material facts are in dispute. (Cohen v. DIRECTV, Inc. (2006) 142 Cal.App.4th 1442, 1447; Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708, 714.)
Plaintiffs contention that the arbitration agreement is substantively unconscionable because it embraces only claims that an employee would bring—but not claims that an employer would bring—ignores the language of the agreement. The parties agreed to arbitrate "[a]ny dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof." (Italics added.) Through this clause, the parties did not agree that only PiperEves claims would be arbitrated, nor did it limit the arbitration clause to only claims that PiperEve was likely to bring. Instead, it provided broadly for arbitration of all claims arising out of the Consulting Services Agreement.
We also reject plaintiffs contention that the arbitration agreement is procedurally unconscionable because it does not satisfy the five Armendariz factors. Under Armendariz, an agreement requiring arbitration of "unwaivable statutory claims" is lawful if it "`(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators fees or expenses as a condition of access to the arbitration forum." (Armendariz, supra, 24 Cal.4th at p. 102.)
The present agreement satisfies the five Armendariz factors. First, the agreement provides for a neutral arbitrator by incorporating the JAMS rules, which state (rule 7) that "[t]he Arbitration shall be conducted by one neutral Arbitrator unless all Parties agree otherwise." (Italics added.) Second, the agreement provides for discovery through its incorporation of JAMS rule 17, which requires that the parties "complete an initial exchange of all relevant, non-privileged documents, including, without limitation, copies of all documents in their possession or control on which they rely in support of their positions, names of individuals whom they may call as witnesses at the Arbitration Hearing, and names of all experts who may be called to testify at the Arbitration Hearing." Further, the rules provide that each party "may take one deposition of an opposing Party or of one individual under the control of the opposing Party" and that "[t]he necessity of additional depositions shall be determined by the Arbitrator based upon the reasonable need for the requested information, the availability of other discovery options and the burdensomeness of the request on the opposing Parties and the witness." Third, the agreement provides for a written award through the incorporation of JAMS rule 24, which provides that the arbitrator render an award that "will consist of a written statement signed by the Arbitrator regarding the disposition of each claim and the relief, if any, as to each claim." Fourth, contrary to plaintiffs claim, the arbitration agreement does not in any way limit the kinds of relief available to the parties. Fifth, plaintiffs have not made a sufficient showing that the fifth Armendariz factor applies. Armendariz holds that "when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court." (Armendariz, supra, 24 Cal.4th at pp. 110-111.) Here, plaintiffs have not made an evidentiary showing either that Lippert was an "employee" of TJR or that TJR "impose[d] mandatory arbitration as a condition of employment." Accordingly, we cannot conclude that this factor applies.
IV. Lipperts Individual Claims
Plaintiffs contend finally that even if PiperEves claims are subject to arbitration, Lipperts claims are not because "she was not a party, individually[,] to any [sic] of the two agreements." Plaintiffs concede that under some circumstances a nonsignatory to an arbitration agreement can be bound by its terms, but they contend that none of those circumstances exist here.
We do not agree. Under principles of equitable estoppel, a party may be precluded from asserting rights he otherwise would have had against another "`when his own conduct renders assertion of those rights contrary to equity." (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713.) In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks to enforce other provisions of the same contract. (Ibid.; Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 272.) "The fundamental point is that a party may not make use of a contract containing an arbitration clause and then attempt to avoid the duty to arbitrate by defining the forum in which the dispute will be resolved." (Boucher v. Alliance Title Co., Inc., supra, at p. 272.)
Division Five of this district applied these principles in Boucher v. Alliance Title Co., Inc., supra, 127 Cal.App.4th 262, holding that because the plaintiffs causes of action were based on a contract containing an arbitration clause, plaintiff was equitably required to submit to arbitration even though he was not a signatory to the contract. There, the plaintiff entered into a three-year written employment agreement with Financial Title Company (Financial). (Id. at p. 265.) During the term of plaintiffs employment, Financial transferred its assets to Alliance Title Company (Alliance), which refused to honor plaintiffs employment agreement. Plaintiff sued, alleging causes of action against Financial and Alliance for violations of Labor Code sections 201 and 203, breach of employment contract, breach of the implied covenant of good faith and fair dealing, and violation of Business and Professions Code section 17200. (Ibid.) Both defendants filed petitions to compel arbitration; the trial court granted the petition as to Financial, but denied it as to Alliance. (Id. at p. 267.)
The Court of Appeal disagreed and reversed. It noted that "under equitable estoppel principles and in appropriate factual circumstances, a signatory to [an] agreement containing an arbitration clause may be compelled to arbitrate its claims against a nonsignatory when the relevant causes of action rely on and presume the existence of the contract." (Boucher, supra, 127 Cal.App.4th at p. 269.) The critical issue, the court said, is whether the plaintiffs causes of action are "`"intimately founded in and intertwined with"" the underlying contract obligations. (Id. at p. 271.) The court determined that plaintiffs claims in the case were so intertwined: "Plaintiffs claims against defendant rely on, make reference to, and presume the existence of the June 5, 2003, employment agreement with Financial. . . . [P]laintiff alleges: [Alliance] failed to pay him accrued wages, including incentive compensation, due under the terms of the June 5, 2003, employment agreement and the Labor Code; [Alliances] failure to pay plaintiff accrued wages and incentive compensation due under the June 5, 2003, employment agreement entitled him to penalties under the Labor Code; [Alliance] breached the June 5, 2003, employment contract causing plaintiff damages in the form of lost earnings and other employment benefits due under that agreement; [Alliance] breached the covenant of good faith and fair dealing implied in the June 5, 2003, employment agreement; and the failure to pay wages due, requiring plaintiff to reject the June 5, 2003, employment contract, and asking plaintiff to disclose confidential information in violation of that contract, amounted to unlawful, unfair, or fraudulent business acts. . . . These claims all make reference to and presume the existence of the validity of the June 5, 2003, employment contract." (Id. at p. 272.) Thus, the court concluded, plaintiffs claims against Alliance "are intimately founded in and intertwined with" the employment agreement, and plaintiff therefore was equitably estopped from avoiding arbitration. (Id. at pp. 272-273.)
Other cases have reached similar results. (See, e.g., Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1279 [trial court erred in deciding "that individual defendants, who were not signatories to a contract containing an arbitration provision but were sued as alter egos of a corporate defendant who was a signatory, may not compel another signatory party to arbitrate the controversies raised in the complaint"]; Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828 [reversing order denying petition to compel arbitration, where plaintiffs claims were "intertwined" with contract containing arbitration provision]; Metalclad Corp. v. Ventana Environmental Organizational Partnership, supra, 109 Cal.App.4th 1705 [same].)
These principles govern here. Lippert alleges: (1) TJR breached the Consulting Agreement; (2) TJR breached the implied covenant of good faith and fair dealing implied in the Consulting Agreement; (3) TJR violated the Labor Code by failing to pay Lippert wages owed pursuant to the Consulting Agreement; (4) TJR violated the public policy expressed in the Labor Code by failing to pay Lippert wages and/or commissions owed pursuant to the Consulting Agreement. These claims all make reference to and presume the existence of the validity of the Consulting Agreement. Thus, Lipperts claims against TJR, as in Boucher, "are intimately founded in and intertwined with" the Consulting Agreement, and Lippert is equitably estopped from avoiding arbitration.
Whether Lippert may be compelled to arbitrate necessarily is before us because an arbitrator has no power to determine the rights and obligations of one who is not bound by an arbitration agreement. (American Builders Assn. v. Au-Yang (1990) 226 Cal.App.3d 170, 179.) However, whether all of Lipperts claims are subject to arbitration goes to the scope of the arbitration agreement and, thus, is an issue to be decided by the arbitrator. For this reason, nothing in the preceding discussion should be interpreted to express an opinion that all of Lipperts claims are (or are not) arbitrable.
DISPOSITION
The trial courts order denying defendants/appellants petition to compel arbitration and motion to stay proceedings is reversed. For the reasons expressed in this opinion, we conclude that the appeal is not frivolous and deny plaintiffs/respondents motion to dismiss. Appellants shall recover their costs on appeal.
We concur:
EPSTEIN, P. J.
WILLHITE, J.