Opinion
B320362
07-25-2023
PACETECH, INC., Plaintiff and Respondent, v. PATRICK CAMPBELL, Defendant and Appellant.
Marshall & Associates, Ronald Travis M. Tillman, Rodger C. Jensen and John A. Marshall for Defendant and Appellant. Law Office of Mitchell R. Stein and Mitchell R. Stein; Law Office of Marc Appell and Marc J. Appell for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. 21STCV39901 Richard L. Fruin, Judge. Reversed and remanded with directions.
Marshall & Associates, Ronald "Travis" M. Tillman, Rodger C. Jensen and John A. Marshall for Defendant and Appellant.
Law Office of Mitchell R. Stein and Mitchell R. Stein; Law Office of Marc Appell and Marc J. Appell for Plaintiff and Respondent.
ZUKIN, J.
INTRODUCTION
Defendant Patrick Campbell (Campbell) appeals from the trial court's order denying his motion to compel arbitration of plaintiff Pacetech, Inc.'s (Pacetech) complaint. Campbell contends the court erred by: (1) not addressing the threshold question of whether the arbitrator, not the court, has jurisdiction to determine whether the arbitration clause's scope encompasses the dispute alleged in Pacetech's complaint; and (2) finding the claims in the complaint to be outside the arbitration clause's scope. We agree with Campbell's first contention. We conclude the parties agreed the arbitrator, not the court, has jurisdiction to determine the arbitrability of the claims in the complaint. Accordingly, we reverse the trial court's order denying Campbell's motion to compel arbitration. We do not address Campbell's second contention, given our conclusion that the court did not have jurisdiction to decide the arbitrability issue.
As described further below, we also conclude, as an initial matter, Campbell met his statutory burden of alleging the existence of an agreement to arbitrate. We note he did the minimum to meet that burden. He provided a highly redacted contract containing the arbitration clause, making it difficult for the court to determine whether it had the relevant provisions to rule on the motion. The court gave Campbell multiple opportunities to provide the entire agreement. The court continued the hearing on the motion to allow Campbell to file the agreement under seal. Campbell improperly lodged the complete agreement with the court before the second hearing.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Agreement and the Arbitration Clause
On December 20, 2013, Campbell and Pacetech signed a written contract entitled, "Agreement-Distribution of Assets and Liabilities Between the Co-Chairmen as it pertains to CAMERON| PACE Group, LLC, a Delaware limited liability company and CAMERON | PACE Group, a California Corporation" (the Agreement). The Agreement collectively defined "Parties" (Parties) as Campbell, CAMERON|PACE Group, LLC (the LLC), CAMERON |PACE Group (the Corporation), Vincent Pace, and James Cameron. The Agreement provided: "Thus, this letter constitutes a binding agreement by and among the Parties." The Agreement contained the following arbitration clause:
Pacetech alleged in its complaint that Cameron Pace Group (Corporation) was required to and did rename itself as Pacetech, Inc. pursuant to the Agreement. Pacetech does not dispute that it was a party and signatory to the Agreement.
"Dispute Resolution; Venue; Equitable Relief. Any dispute that may arise out of this Agreement, the prior agreements between the Parties, or the subject matter thereof, will be subject to confidential final and binding arbitration ('Arbitration') in Los Angeles, California, before JAMS pursuant to JAMS Comprehensive Arbitration Rules and Procedures, provided that any Party may seek to enforce the arbitration award in any dispute arising out of this Agreement or its subject matter in a court of competent jurisdiction located in Los Angeles, California."
The JAMS Comprehensive Arbitration Rules &Procedures (JAMS Rules) includes rule 11, entitled "Interpretation of Rules and Jurisdictional Challenges." Rule 11(b) states: "Jurisdictional and arbitrability disputes, including disputes over the formation, 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."
All of the Parties signed the Agreement, including Campbell in his individual capacity and Vincent Pace as an authorized signatory of Pacetech.
B. The Superior Court Action
Pacetech filed a complaint alleging Campbell "knowingly, illegally and wrongfully" copied Pacetech's hard drives (i.e., company assets) to take a business opportunity away from Pacetech. Pacetech asserted seven causes of action against Campbell: (1) violation of the Computer Data Access and Fraud Act; (2) conversion; (3) intentional interference with prospective economic advantage; (4) negligent interference with prospective economic advantage; (5) unfair competition; (6) unjust enrichment and (7) an accounting.
C. The Motion to Compel Arbitration
Campbell filed a motion to compel arbitration and to stay the action pending arbitration (Code Civ. Proc., § 1280 et seq.). In his motion, Campbell argued (1) as a threshold matter, the arbitration clause in the Agreement gives jurisdiction to an arbitrator, not the court, to determine the arbitrability of the claims in the complaint, and (2) even if the court decides it has jurisdiction to determine arbitrability, the scope of the arbitration clause encompasses the claims in the complaint. Campbell attached a redacted version of the Agreement to his motion because, according to Campbell, the Agreement was confidential. This version provided the entire arbitration clause, along with the Agreement's title, the definition of "Parties," which included both Campbell and Cameron Pace Group, and the signature pages.
All further statutory references are to the Code of Civil Procedure unless otherwise stated.
D. The Opposition to the Motion to Compel Arbitration
In opposition to the motion, Pacetech did not address Campbell's threshold argument asserting the parties agreed to have an arbitrator, not the court, decide the scope of the arbitration clause. Rather, Pacetech argued the scope of the arbitration clause did not cover the claims in the complaint. Pacetech contended the gravamen of the Agreement's terms relate to rights and obligations between Pacetech and Cameron, and not between Campbell and Pacetech.
Pacetech did not dispute, however, that Campbell is included in the definition of "Parties." Nor did it dispute the existence of an agreement to arbitrate. Pacetech also did not argue Campbell failed to meet his burden as the moving party.
E. The Hearings on the Motion to Compel Arbitration and the Application to Seal
At the hearing on the motion, the trial court noted it did not understand what the relevant arbitration clause was or why portions of the Agreement were redacted. Campbell explained the Agreement contained a confidentiality provision and other parties to the Agreement were not involved in the action. Campbell also stated the entirety of the arbitration clause was filed with the motion, unredacted. Ultimately, the court instructed Campbell to file an application to seal the Agreement and continued the hearing on the motion.
Campbell subsequently filed the application to seal. At the continued hearing, the court explained the application to seal did not satisfy the procedural requirements. After the parties argued the merits of the motion, the court took the matter under submission.
F. The Trial Court's Ruling
The court denied Campbell's application to seal and issued an order denying the motion to compel arbitration. In denying the motion, the court found the disputes raised in the complaint did not fall within the scope of the arbitration clause. The court did not address Campbell's preliminary argument that an arbitrator, not the court, had jurisdiction to decide whether the claims in the complaint fell within the arbitration clause's scope.
Campbell is not appealing from the denial of the application to seal.
In its opening brief, Pacetech contends the unredacted Agreement should not be relied upon on appeal as it is not properly in the record. We agree. Accordingly, we do not rely on that version of the Agreement. We rely only on the version of the Agreement Campbell filed with his motion.
Campbell timely appealed.
DISCUSSION
A. Standard of Review
"Ordinarily, we review a denial of a petition to compel arbitration for abuse of discretion. [Citations.] However, where the trial court's denial of a petition to arbitrate presents a pure question of law, we review the order de novo." (Gorlach v. Sports Club Co. (2012) 209 Cal.App.4th 1497, 1505.)
"'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 court's construction of a contract based solely upon the terms of the instrument without the aid of evidence." . . . Where, as here, the language of an arbitration provision is not in dispute, the trial court's decision as to arbitrability is subject to de novo review.... [¶] . . . [Citation.]" (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1436-1437; Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 263 ["the resolution of a 'question of arbitrability' is reviewable by courts de novo"].)
B. Existence of an Arbitration Agreement
Contract clauses that delegate questions of arbitrability to an arbitrator are routinely referred to as "delegation clauses." (See Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 774 (Mendoza); Najarro v. Superior Court (2021) 70 Cal.App.5th 871 (Najarro); Trinity v. Life Ins. Co. of North America (2022) 78 Cal.App.5th 1111, 1121-1123.) Although the question before us is whether the parties agreed to delegate authority to the arbitrator to decide arbitrability issues, we must first determine whether Campbell has alleged the existence of an agreement to arbitrate with Pacetech. We conclude he has.
Even where, as here, we conclude there is a "broadly worded delegation clause . . . courts have held that certain gateway issues are for a court to decide, including whether the parties entered into an agreement to arbitrate at all." (Mendoza, supra, 75 Cal.App.5th at p. 774; Najarro, supra, 70 Cal.App.5th at p. 879 ["we must enforce the delegation clause unless we conclude that no agreement between the contracting parties ever existed due to a lack of mutual assent"].)
Section 1281.2 authorizes petitions to compel arbitration, providing in 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 to the agreement refuses to arbitrate that 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." (§ 1281.2, italics added.)
California Rules of Court, rule 3.1330 provides: "A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state . . . the provisions of the written agreement and the paragraph that provides for arbitration." To satisfy this requirement, the "provisions must be stated verbatim or a copy must be . . . attached to the petition and incorporated by reference." (Ibid.)
In Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 (Rosenthal), our Supreme Court explained the evidentiary burden in alleging the existence of an agreement to arbitrate. "[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. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement-either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citations]-that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense. [Citation.]" (Ibid.)
Here, Campbell proved the existence of an agreement to arbitrate, and Pacetech did not refute its existence or present a defense to enforcement. The redacted version of the Agreement Campbell attached to his motion included the entire arbitration clause and other relevant provisions. Specifically, it included the title of the Agreement ("Agreement-Distribution of Assets and Liabilities Between the Co-Chairmen as it pertains to [the LLC and the Corporation]"), the definition of "Parties" to include Campbell and Pacetech, and the signature pages of the Parties. The Agreement also contained the arbitration clause without any indication of redaction. Within the arbitration clause, the "Parties" broadly agreed to arbitrate "[a]ny dispute that may arise out of this Agreement, the prior agreements between the Parties, or the subject matter thereof."
Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684 is instructive. In that case, the court held, "It is clear that the parties agreed to arbitrate 'any problem or dispute' that arose under or concerned the terms of the [agreement]. That contractual language is both clear and plain. It is also very broad. In interpreting an unambiguous contractual provision we are bound to give effect to the plain and ordinary meaning of the language used by the parties." (Ibid.; Efund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1322 (Efund Capital Partners) ["Plaintiff's agreement to arbitrate '[a]ny dispute or other disagreement' with [defendant] is plain, clear, and very broad"].) Here, the arbitration clause is not limited to any dispute arising under the Agreement, but also pertains to "[a]ny dispute" arising out of "prior agreements" between the Parties or the "subject matter" of the Agreement.
In opposition, Pacetech did not present any argument or evidence in the trial court to "raise[] a defense to enforcement-either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citations]." (Rosenthal, supra, 14 Cal.4th at p. 413.) Pacetech also did not challenge the existence, validity, or language of the arbitration clause. Nor did Pacetech allege any additional provisions in the Agreement were needed to interpret the arbitration provision. Pacetech opposed the motion only on the issue of whether the scope of the arbitration clause covers the claims as alleged in the complaint. Therefore, we conclude Campbell met his burden in alleging the existence of an "agreement to arbitrate the controversy" between Campbell and Pacetech. (Rosenthal, supra, 14 Cal.4th at p. 413; Cal. Rules of Court, rule 3.1330.)
For the first time on appeal, Pacetech contends the redacted version of the Agreement was insufficient to allow a court to compel arbitration. We disagree. As previously noted, the California Rules of Court require the moving party to attach "the provisions of the written agreement and the paragraph that provides for arbitration." (Cal. Rules of Court, rule 3.1330, italics added.) The rule requires attaching the entirety of the arbitration provision, not the entirety of the contract containing the arbitration agreement. (Ibid.; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218 [interpreting rule 3.1330 as requiring provisions "of the arbitration agreement"].) Campbell did what the rules require, albeit the bare minimum, by attaching the Agreement's arbitration clause and other relevant provisions.
Pacetech also contends a court will not enforce an agreement where the terms are "so [in]definite and uncertain that its exact terms and conditions thereof cannot be ascertained." Pacetech cites Civil Code section 3390, subdivision (e), which provides "[t]he following obligations cannot be specifically enforced [¶] . . . [¶] [a]n agreement, the terms of which are not sufficiently certain to make the precise act which is to be done clearly ascertainable." Here, the "precise act which is to be done" is compelling the complaint to arbitration and staying the action pending the arbitrator's determination regarding the scope of the arbitration clause. That act is "clearly ascertainable" from the plain terms of the arbitration clause. (Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 500 ["The defense of uncertainty has validity only when the uncertainty or incompleteness of the contract prevents the court from knowing what to enforce"].)
C. The Delegation Clause
Given the existence of an agreement to arbitrate, we now address whether the parties agreed to have an arbitrator, not the court, determine whether the claims in the complaint fall within the scope of the arbitration clause.
The arbitration clause at issue incorporates the JAMS Rules, and the JAMS Rules include rule 11(b). Rule 11(b) in turn, delegates authority to the arbitrator to determine questions of arbitrability.
While the court usually has jurisdiction to determine the scope of an arbitration clause, "the parties may, by clear and unmistakable agreement, elect to have the arbitrator, rather than the court, decide which grievances are arbitrable. [Citation.]" (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1123 (Rodriguez).) '"The 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.'" (Greenspan v. LADT, supra, 185 Cal.App.4th at p. 1437.) "When the contractual language is clear, there is no need to consider extrinsic evidence of the parties' intentions; the clear language of the agreement governs. [Citations.]" (Efund Capital Partners, supra, 150 Cal.App.4th at p. 1322.) "We also interpret arbitration rules in accordance with their plain meaning. [Citations.]" (Greenspan, supra, 185 Cal.App.4th at p. 1437.)
Campbell cites Rodriguez, supra, 136 Cal.App.4th 1110 and Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547 (Dream Theater), in support of his argument that the parties agreed to have an arbitrator and not the court decide issues of arbitrability.
In Rodriguez, the Court of Appeal reversed an order denying a motion to compel arbitration. The court reasoned, "the parties clearly and unmistakably agreed to have the arbitrator determine the scope of the arbitration clause" where the arbitration clause read as follows: "'[A]ny controversy or claim arising [out] of or related to this Agreement or the breach of any provision thereof shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise.'" (Rodriguez, supra, 136 Cal.App.4th at pp. 1116, 1123.)
The court explained that rule 8(a) of the AAA Construction Industry Rules specifies 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.'" (Rodriguez, supra, 136 Cal.App.4th at p. 1123.) Although the arbitration clause did not contain specific reference to rule 8(a), the court noted rule 8(a) was incorporated by reference because the general AAA rules were incorporated. (See ibid.) Therefore, the court concluded that any issues regarding the scope of the arbitration clause should be determined by the arbitrator and not the court. (Ibid.)
In Dream Theater, 124 Cal.App.4th 547, the Court of Appeal reversed an order denying a motion to compel arbitration. (Id. at p. 558.) Like in Rodriguez, the arbitration provision at issue specified, "'[e]ach Party agrees that any Contested Claim will be submitted to mandatory, final and binding arbitration in the County of Los Angeles, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect.'" (Id. at p. 554.) The court noted the AAA rules "specify that the arbitrator will decide disputes over the scope of the arbitration agreement." (Id. at p. 557.) The court reasoned, "where the Contract provides for arbitration in conformance with rules that specify the arbitrator will decide the scope of his or her own jurisdiction, the parties' intent is clear and unmistakable, even without a recital in the contract that the arbitrator will decide any dispute over arbitrability." (Id. at p. 557.)
The Parties here plainly agreed the arbitrator would decide the scope of the arbitration clause. The delegation clause is nearly identical to the clauses in Rodriguez and Dream Theater. It stated arbitration shall be subject to "JAMS Comprehensive Arbitration Rules and Procedures." The JAMS Rules include rule 11(b), making clear "Jurisdictional and arbitrability disputes, including disputes over . . . scope of the agreement under which Arbitration is sought . . . 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." Based on the plain language of the arbitration clause incorporating the JAMS Rules, and the plain language of rule 11(b), Pacetech and Campbell "clearly and unmistakably" agreed an arbitrator, not the court, has authority "as a preliminary matter" to determine whether the complaint's claims fall within the scope of the arbitration clause.
For the first time on appeal, Pacetech argues, "[t]he issue of arbitrability should not be decided by the arbitrator because this dispute does not arise out of the agreement" and states "who gets to decide arbitrability should be determined by the nature of the dispute. [Pacetech's] complaint is based entirely in tort and has no relation to Appellant's duties under the Agreement." This argument, however, relates to the secondary question of whether the claims are arbitrable, not the threshold issue of who decides whether the arbitration clause's scope encompasses the dispute alleged in Pacetech's complaint. Pacetech did not cite any legal authority to further the argument that the arbitrability question is for the court and not for the arbitrator.
DISPOSITION
The order denying Campbell's motion to compel arbitration is reversed. The trial court is directed on remand to enter a new order (1) granting the motion to compel arbitration to determine the limited issue of whether Pacetech's claims in the complaint fall within the scope of the Agreement's arbitration clause; and (2) staying this action pending the arbitrator's determination of the arbitrability issue. If the arbitrator determines that the entirety of the claims fall within the scope of the complaint, the action shall be stayed pending completion of the arbitration. Campbell is awarded costs on appeal.
WE CONCUR: CURREY, P. J., MORI, J.