Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment and order of the Superior Court of San Diego County No. GIN-048514, Michael B. Orfield, Judge.
AARON, J.
I.
INTRODUCTION
P.O.P. Enterprises, Inc. (P.O.P.) leased commercial space from Riley J. Lively (Lively) to operate a billiards parlor. In a written lease (Lease), the parties agreed to arbitrate "any dispute between Lessor and Lessee with respect to the provisions hereof...." P.O.P. subsequently filed this action against Lively claiming slander of title, and intentional and negligent interference with prospective economic advantage, based on allegations that Lively had interfered with P.O.P.'s attempt to sell its business and assets, including the Lease, to a prospective purchaser. In a first amended answer, Lively raised various affirmative defenses, including that all of P.O.P.'s causes of action were barred on the ground that the Lease required that the claims be arbitrated. The trial court sustained P.O.P.'s demurrer to this affirmative defense, and the action proceeded to trial.
At trial, P.O.P. attempted to prove its claims by presenting evidence that Lively had made allegedly defamatory statements to the prospective purchaser, Louis Rodriguez, regarding P.O.P.'s performance and obligations under the Lease. Specifically, Rodriguez testified that Lively told him that P.O.P.'s president, Philip Paccione, had not maintained the heating, ventilating and air conditioning (HVAC) units on the property, and that Lively's property manager had told Rodriguez that it was Paccione's obligation to replace the HVAC units. P.O.P. claimed that Lively's statements caused Rodriguez to terminate the negotiations to acquire P.O.P.'s business.
At trial, the parties and witnesses referred to the units interchangeably as either air conditioning units or HVAC units. For the sake of consistency, we refer to the units as HVAC units throughout this opinion.
After the close of the evidentiary portion of the trial, the trial court granted Lively's motion for a directed verdict as to P.O.P.'s claim of slander of title, but allowed the claims for intentional and negligent interference with prospective economic advantage to go to the jury. The jury returned a verdict in favor of P.O.P. on these claims, and awarded P.O.P. a total of $452,784 in compensatory and punitive damages.
On appeal, Lively claims that the judgment must be reversed on several grounds, including that the trial court erred in sustaining P.O.P.'s demurrer to Lively's affirmative defense of arbitration. In a cross-appeal, P.O.P. claims that the trial court erred in granting Lively's motion for a directed verdict on P.O.P.'s claim of slander of title.
P.O.P. also appealed from the trial court's order denying its postjudgment motion for attorney fees based on a provision in the Lease, but abandoned that appeal in its brief.
In Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312 (Ericksen), the Supreme Court concluded that an arbitration clause nearly identical to the one contained in the Lease was "broad enough" to encompass a tort claim that was "inextricably enmeshed" with issues that the parties had agreed to arbitrate. (Id. at p. 324.) In addition, the Court of Appeal has held in a number of cases that arbitration clauses similar to the one in the Lease required arbitration of tort claims that had "roots" in the parties' contractual relationship. (E.g., Merrick v. Writers Guild of America, West, Inc. (1982) 130 Cal.App.3d 212, 219 (Merrick).)
P.O.P.'s claims are not only rooted in the parties' contractual relationship, but are based directly on issues concerning the parties' performance and obligations under the Lease. We conclude that all of P.O.P.'s claims are subject to arbitration, and that the trial court committed prejudicial error in sustaining P.O.P.'s demurrer to Lively's first amended answer in which Lively raised the affirmative defense that P.O.P.'s claims fell within the scope of the arbitration clause in the Lease.
We reverse the judgment and remand the matter with directions that the trial court overrule P.O.P.'s demurrer to Lively's first amended answer. We direct the trial court to vacate all orders that were entered after the court sustained P.O.P.'s demurrer ─ including the court's order granting Lively's motion for a directed verdict ─ and to allow Lively to exercise his contractual right to arbitration. In light of our reversal of the judgment on the threshold issue of arbitrability, we do not consider Lively's other contentions on appeal.
Our direction to the trial court to vacate its order granting Lively's motion for a directed verdict renders P.O.P.'s cross-appeal moot.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. Introduction
Lively asserted on numerous occasions in the trial court that P.O.P.'s claims were subject to arbitration, including in his first amended answer, his summary judgment briefing, a motion to stay the litigation, a motion in limine, and also in postverdict motions for a new trial and for judgment notwithstanding the verdict. The record demonstrates that the trial court repeatedly concluded that P.O.P.'s claims could be adjudicated in the trial court without infringing on Lively's contractual right to arbitration.
It appears that the trial court's conclusions in this regard are attributable to a combination of P.O.P.'s continually evolving theory as to the evidentiary bases of its claims, the trial court's misunderstanding and consequent misapplication of the substantive law of defamation, and a failure to recognize that P.O.P.'s claims are "inextricably enmeshed" with factual issues that the parties agreed to arbitrate. (Erickson, supra, 35 Cal.3d at p. 324.) In any event, it is clear that the contorted procedural path of this litigation culminated in a trial of claims that should have been arbitrated.
B. Lively's notice to perform or quit and P.O.P.'s initial complaint
In September 2005, Lively served P.O.P. with several three-day notices to perform or to quit. In one of these notices, Lively asserted that P.O.P. had "failed to maintain and repair the HVAC and swamp-cooler units, as required under... [the] Lease."
In November 2005, P.O.P. filed this action against Lively. In its complaint, P.O.P. alleged that Lively had breached the Lease by, among other actions, removing an HVAC unit from the property and by failing to replace two other HVAC units. P.O.P. brought several claims based on Lively's alleged breaches of his obligations under the Lease, including declaratory relief, specific performance, and breach of contract. P.O.P. also claimed that Lively had made false statements to Rodriguez concerning P.O.P.'s performance and rights under the Lease, and that Lively's statements had caused Rodriguez to terminate his planned acquisition of P.O.P's business. P.O.P. brought claims including tortious interference with economic relationship and negligent interference with economic relationship, based on this alleged conduct.
Lively filed a motion to strike and a demurrer to P.O.P.'s complaint. In his briefs in support of the motion to strike and the demurrer, Lively claimed that an arbitration provision in the Lease required that P.O.P. arbitrate its claims for declaratory relief, specific performance, and breach of contract.
The arbitration clause in the Lease provides:
"In the event of any dispute between Lessor and Lessee with respect to the provisions hereof, the matter shall be settled by arbitration in such a manner as the parties may agree upon, or if they cannot agree, in accordance with the rules of the American Arbitration Association."
C. P.O.P.'s operative first amended complaint
In February 2006, P.O.P. filed the operative three-count first amended complaint. In it, P.O.P. alleged that Lively had induced Rodriguez to terminate his planned acquisition of P.O.P.'s business. Specifically, P.O.P. alleged:
In his brief, Lively asserts that P.O.P. filed the first amended complaint prior to the trial court's ruling on Lively's motion to strike or demurrer. P.O.P. does not dispute this contention.
"[Lively] wrongfully and falsely disparaged the value of the business stating in essence that it was not worth $450,000 because there was no enforceable lease. Specifically, it is believed on information, that [Lively] made false claims regarding (i) [P.O.P.'s] performance under the Lease, (ii) [P.O.P.'s] ability to exercise its option to extend the Lease, and (iii) [P.O.P.'s] ability to assign the Lease in conjunction with the prospective sale. [P.O.P.] also is informed and believes and thereon alleges that [Lively] attempted to induce... Rodriguez to terminate his prospective economic relationship...."
In a cause of action for slander of title, P.O.P. claimed that Lively's conduct constituted "an unprivileged publication of a false statement disparaging [P.O.P.'s] leasehold interest in [t]he [p]roperty to Rodriguez...." P.O.P. also brought claims for intentional and negligent interference with prospective economic advantage, based on this alleged conduct.
D. P.O.P.'s demand for arbitration of its claim that Lively failed to perform his obligation under the Lease to replace the HVAC units, and Lively's contention that P.O.P. failed to maintain the HVAC units
In February 2006, the day after P.O.P. filed its first amended complaint, P.O.P. served an arbitration demand on Lively in which it sought to arbitrate the breach of contract, declaratory relief, and specific performance claims that it had alleged in its original complaint. In the demand, P.O.P. claimed that Lively had failed to perform his obligation under the Lease to replace HVAC units on the property. P.O.P. also sought arbitration of Lively's claim that P.O.P. was in default under the Lease for failing "to repair/maintain a [s]wamp [c]ooler...." In an April 2006 declaration filed in this case, Paccione, P.O.P.'s president, stated, "Presently there is an [a]rbitration proceeding which was recently filed to address issues relating to the HVAC units, and Lively's unsupported and abusive service of 3-day notices back in September 2005." (Italics added.)
The arbitration demand was not filed in this case. A copy of the demand is contained in the record, attached as an exhibit to a brief that P.O.P. filed concerning another matter. The brief states, "On February 28, 2006, [P.O.P.] filed and served an arbitration demand on [Lively] and his counsel."
In July 2006, P.O.P. filed a petition to compel arbitration, pursuant to the arbitration provision in the Lease. In its brief in support of the petition, P.O.P. argued that the Lease's arbitration provision required that Lively arbitrate the disputes outlined in P.O.P.'s February 2006 demand for arbitration. In a declaration in support of the petition, P.O.P.'s counsel asserted that Lively had failed to respond to P.O.P.'s demand for arbitration.
The petition to compel arbitration was filed as a separate action. The petition is contained in the record in this case as an exhibit to the brief referred to in footnote 5, ante. It is unclear from the record whether the petition to compel arbitration was ever ruled upon, and if so, in what manner. It is also unclear from the record whether an arbitration was ever commenced, and if so, what the current status is.
E. Lively's first amended answer and motion for summary judgment or adjudication
In August 2006, Lively filed a first amended answer. In it, Lively alleged, as an affirmative defense, that all of P.O.P.'s causes of action were barred on the ground that P.O.P. had failed to exhaust its "arbitral" remedies. Specifically, Lively asserted, "[P.O.P.'s] causes of action are barred on the basis that arbitral remedies were not exhausted and/or this court lacks the requisite jurisdiction to entertain [P.O.P.'s] complaint or grant [P.O.P.] its requested relief, or any relief."
Lively raised a total of 62 affirmative defenses in his first amended answer.
P.O.P. filed a demurrer to Lively's first amended answer. In its brief in support of its demurrer, P.O.P. claimed that Lively failed to allege sufficient facts to constitute a defense in several of his affirmative defenses, including in the defense premised on arbitration. P.O.P. requested that the court grant its demurrer as to these causes of action, with leave to amend.
In September 2006, Lively filed a motion for summary judgment or summary adjudication. In his brief in support of his motion, Lively claimed that there was no evidence to support P.O.P.'s allegation that Lively had told Rodriguez that P.O.P. did not have an enforceable lease. Accordingly, Lively claimed that there was no evidence that he had committed any wrongful conduct, which P.O.P. would have to establish in order to prove its claims.
On November 22, 2006, P.O.P. filed an opposition to Lively's motion for summary judgment or adjudication. In its opposition, P.O.P. claimed that Lively was mistaken as to the nature of the wrongful conduct alleged in P.O.P.'s complaint:
"In his moving papers, [Lively] misstates the gravamen of [P.O.P.'s] claims in an effort to mislead the Court as to the nature and character of the disparagement of P.O.P.'s [L]ease.... [Lively] seems to be operating under the mistaken belief that Lively's comments regarding the value of the business are the only publication under attack. Such is clearly not the case. [¶] The focus of [P.O.P.'s] lawsuit is leveled upon Lively's false and wrongful statements made to Louis Rodriguez regarding P.O.P.'s purported failure to maintain the HVAC units at the P.O.P. facility, Lively's false and wrongful statements regarding P.O.P.'s purported obligation to replace the HVAC units at the P.O.P. facility... and the effect said defaults had on the value of the business." (Italics added.)
That same day, Lively filed an opposition to P.O.P.'s demurrer. In his opposition, Lively claimed that P.O.P.'s claims were "subject to arbitration per Lively's 48th affirmative defense," and that "P.O.P. refuses to arbitrate with Lively." Lively further noted that in P.O.P.'s demurrer to Lively's first amended answer, P.O.P. had referred to disputes between Lively and Paccione concerning Lively's obligations under the Lease to replace the HVAC units. Lively argued, "[T]o the extent P.O.P. mentions these facts, this Court is without jurisdiction to hear them, and this defense [of arbitrability] is therefore meritorious."
Five days later, P.O.P. filed a reply brief in support of its demurrer. In its brief, P.O.P. reiterated its contention that Lively had not provided sufficient facts in his first amended answer to support many of his affirmative defenses, including the defense premised on arbitration.
On December 1, 2006, the trial court sustained P.O.P.'s demurrer, without leave to amend, as to several of Lively's affirmative defenses, including the affirmative defense of arbitration. The court ruled in relevant part, "The court finds that these defenses relate, if at all, to the causes of action in the original complaint, which are no longer present in the first amended complaint. Thus, the defenses are irrelevant and improper."
Also on December 1, Lively filed a reply brief in support of his motion for summary judgment. In his brief, Lively claimed that P.O.P.'s allegation of wrongful conduct in its first amended complaint pertained to Lively's purported statements concerning the value of P.O.P.'s business. Lively argued that P.O.P. was attempting to avoid summary judgment by changing its theory regarding the wrongful conduct underlying its claims. Specifically, Lively pointed out that P.O.P. was now making new and different allegations, i.e., that Lively had made false statements concerning P.O.P.'s obligations under the Lease pertaining to the HVAC units on the property. Lively noted that P.O.P. had not raised these issues in its first amended complaint, and claimed that the HVAC issues that P.O.P. was now raising as the bases of its claims were subject to arbitration.
On December 8, the trial court held a hearing on Lively's motion for summary judgment. At the hearing, Lively's counsel argued that the trial court lacked jurisdiction to consider any claim related to the Lease, in light of the arbitration provision contained therein. The court stated that issue of arbitrability was not properly before the court because Lively had not addressed that issue in his moving papers.
The court denied Lively's motion for summary judgment, concluding that P.O.P. had presented admissible evidence that Lively had disparaged P.O.P.'s leasehold interest by telling Rodriguez that P.O.P. had failed to maintain the HVAC units, and also by stating that it was P.O.P.'s obligation under the Lease to replace the HVAC units. The court ruled that this evidence created a triable issue of material fact as to whether "'[Lively] made false claims regarding... [P.O.P.'s] performance under the Lease,'" as alleged in the first amended complaint.
F. Lively's motion for a stay
In January 2007, Lively filed a "Notice of defendant's ex parte application for order shortening time and for stay order staying this civil action until [P.O.P.'s] [L]ease issues are determined by arbitration." In the notice, Lively stated that he was requesting an order allowing him to file a formally noticed motion seeking an order to stay the action, or in the alternative, an order staying the action. In a brief in support of his application, Lively claimed that P.O.P. was required to arbitrate all claims arising under the Lease, and that P.O.P. was attempting to litigate such claims in this action. In an accompanying declaration, Lively's counsel stated, "P.O.P. has not exhausted its required administrative proceeding by initiating, prosecuting and completing an arbitration on all issues pertinent to the [L]ease agreement between the parties." Lively also lodged a copy of the Lease.
The following day, the trial court entered an order that stated simply, "Motion to stay proceedings ─ Denied."
G. Lively's in limine motions
In March 2007, Lively filed a motion in limine "to exclude evidence related to [L]ease matters requiring arbitration." In the motion, Lively maintained that the parties had agreed that disputes related to the Lease would be arbitrated, and pointed out that the trial court had previously ruled that Lively's arbitration defenses would not be implicated by P.O.P.'s claims. Lively also contended that P.O.P. had previously acknowledged during various pretrial proceedings that this action could not be premised on matters related to the Lease, and that in sustaining P.O.P.'s demurrer, the trial court had previously ruled that Lively's arbitration affirmative defense was "improper and irrelevant." Lively also noted that in opposing Lively's discovery requests, P.O.P. had stated that "a separate arbitration demand has been initiated to cover the various 'HVAC' issues," and pointed out that the court had denied Lively's requests for discovery pertaining to HVAC issues. Lively stated that P.O.P. had "filed and served petitions to compel arbitration... admitting and confirming that all of its claims having anything to do with the [L]ease and/or HVAC, and or maintenance of the premises are subject to arbitration."
Lively also filed a motion in limine to exclude evidence pertaining to P.O.P.'s performance of its duty under the Lease to maintain the HVAC units, and a motion in limine to exclude evidence pertaining to the parties' obligations under the Lease to replace the HVAC units. P.O.P. opposed both motions.
In arguing that P.O.P. could not litigate matters that were subject to arbitration in the context of its tort claims, Lively succinctly argued:
"P.O.P. cannot argue that, because slander and interference tort claims are not a contract claim under the [L]ease, P.O.P. somehow has the right to bandy-about allegations concerning HVAC... as a basis for proving any element of P.O.P.'s causes of action.... If Lively is to be bound by any factual or legal finding concerning a dispute regarding the [L]ease, he has a constitutional, contractual and jurisdictional right to have that finding made in arbitration. Nor can the truth or falsity of any alleged statement concerning the [L]ease be determined outside arbitration. The issue is not whether a claim is framed in tort or contract. The key question is whether the duty that gives rise to liability is independent of the contract or rests upon it."
Lively specifically requested that the court exclude certain evidence from trial, including "all evidence related to any maintenance, repair, and/or replacement obligation of any party for the HVAC...."
In its opposition to Lively's motion in limine, P.O.P. argued that the Lease's arbitration provision was not sufficiently broad to encompass P.O.P.'s tort claims. P.O.P. also maintained that "a fact which supports an inference in a claim for breach of contract may also support an inference or contention with regard to slander of title, and intentional and negligent interference with prospective business advantage." Specifically, P.O.P. argued, "Statement[s] regarding the HVAC system are relevant, admissible and the trier of fact has an obligation to determine whether the statements were true or false."
P.O.P. also stated, "Because the lease agreement included an arbitration clause with respect to the provisions of the contract, the contractual causes of action were dropped in [P.O.P.'s] first amended complaint...."
The trial court held a lengthy hearing on Lively's motion in limine during which counsel for both parties expressed their views as to whether P.O.P.'s claims pertained to issues that were required to be arbitrated. Although it is not entirely clear from the court's comments, it appears that the court ruled that evidence pertaining to whether Lively had stated that P.O.P. had failed to maintain the HVAC would be admissible, but that evidence of Lively's statements concerning whose responsibility it was to replace the HVAC would not be admissible. The court apparently based its ruling on the theory that it was undisputed that P.O.P. had a duty to maintain the HVAC, but that an arbitrator would have to determine whose duty it was to replace the HVAC. At one point during the hearing, the court stated:
P.O.P. acknowledges in its brief on appeal that it was P.O.P.'s responsibility under the Lease to maintain the HVAC units. The Lease provides in relevant part, "Lessee shall at his own expense and at all times, maintain the premises in good and safe condition, including electrical wiring, plumbing and heating installation and any other system or equipment upon the premises...." In addition, an attachment to the Lease provided, "All maintenance and repair of leased premises shall be the total responsibility of Lessee...."
"Everybody concedes that [Lively] was right. The maintenance is the responsibility of the lessee. Maintenance and repair is the responsibility of the lessee. It's just a logical conclusion, right or wrong that the lessee also has the obligation to replace the air conditioning. I don't see any problem with that. [¶] And it might be up to the arbitrator to tell Mr. Lively that's he's wrong, that repair and maintenance is the lessee but replacement is the lessor."
The trial court also suggested that P.O.P. could establish that Lively had engaged in wrongful conduct by demonstrating that Lively had a deceitful state of mind in making statements concerning P.O.P. responsibilities for the HVAC units, even if an arbitrator ultimately were to find that Lively's statements were true. In ruling on Lively's motions in limine to exclude evidence that P.O.P. had maintained the HVAC units, and to exclude evidence as to the parties' obligations under the Lease to replace the HVAC units, the court stated:
"My point is... we are not litigating who had responsibility for the HVAC. We are litigating whether or not [Lively] knew that [P.O.P.] did not have the responsibility and lied that [P.O.P.] did or if... [Lively] knew that [P.O.P] did the repair and lied that [P.O.P] did not. [¶] Who had the duty is an issue yet to be decided in the arbitration. It's not an issue in this case.... We're not asking the jury to decide when he said this who did have the duty. We don't care. That's clearly part of the arbitration."
In a similar vein, the court stated, "If Mr. Lively thought to himself that he had the duty to replace, if that was the evidence, and then told Mr. Rodriguez that it was [P.O.P.'s] duty to replace, then the inference is that [Lively] was lying. That he intended to interfere. We don't have to determine who really did have the duty." Notwithstanding the trial court's suggestion that it was irrelevant whether Lively's statements were true, the court subsequently instructed the jury that Lively was not liable for any harm to P.O.P. if he proved that his statements were true.
The court ultimately denied Lively's motion to exclude evidence that P.O.P. had maintained the HVAC units. With respect to Lively's motion to exclude evidence as to whose obligation it was to replace the HVAC units, the court stated, "The motion is granted to the extent it seeks to exclude evidence of who had the obligation, but it's denied to the extent... evidence can be offered as to what [Lively] knew at the time or didn't know at the time."
H. The trial, judgment, and appeals
In the Spring of 2007, the trial court conducted a jury trial on P.O.P. claims. Rodriguez testified that he met with Lively in July 2005. At that meeting, Rodriguez and Lively discussed Rodriguez's plan to purchase P.O.P.'s business. During the meeting, Lively told Rodriguez that Paccione had not maintained the HVAC units on the property. Rodriguez also testified that a couple of weeks after the meeting, Lively's property manager told Rodriguez that Lively was not going to replace the HVAC units, and that it was Paccione's responsibility to do so.
P.O.P. presented evidence that it had in fact maintained the HVAC units during its tenancy. In addition, P.O.P. offered the Lease in evidence for the purpose of demonstrating that there was no language in the Lease that required that P.O.P. replace the HVAC units.
After the close of the evidentiary portion of the trial, Lively moved for a directed verdict on P.O.P.'s claims. Lively's counsel argued that evidence of Lively's statements concerning whose obligation it was to repair and maintain the HVAC was not legally sufficient to support P.O.P.'s slander of title claim. Counsel also argued that P.O.P.'s interference claims failed as a matter of law, because they were premised on the same legally insufficient evidence.
During defense counsel's remarks, the trial court asked, "Is one of the issues in arbitration as to who has the responsibility to replace the air conditioners?" Lively's counsel responded in the affirmative. The trial court then asked, "So some arbitrator is going to decide who has the responsibility to replace the air conditioners?" Lively's counsel responded, "Yes, your honor." P.O.P.'s counsel stated that he was not certain whether the "issue of HVAC replacement" was part of the arbitration.
In opposition to Lively's motion for a directed verdict, P.O.P.'s counsel argued that Lively's statements that Paccione had failed to maintain the HVAC units and that it was Paccione's duty to replace the HVAC units, constituted slander of title under the circumstances of this case. P.O.P.'s counsel argued, "All we need is Mr. Lively to make an untrue statement about its obligations under the [L]ease because the reasonable inference we can draw from that is that [P.O.P. is] in breach."
After an extended discussion between the court and counsel concerning the nature of P.O.P.'s claims, the trial court granted Lively's motion for a directed verdict as to P.O.P.'s slander of title of claim, concluding that the evidence was insufficient to support P.O.P.'s slander of title claim. However, the court denied the motion as to P.O.P.'s claims for intentional and negligent interference with prospective economic advantage. The court noted that P.O.P. was require to prove that Lively had committed some wrongful conduct in order for P.O.P. to prevail on these claims, and concluded that there was sufficient evidence in the record for the jury to find that Lively had committed the tort of defamation per quod by way of slander. The court distinguished between the torts of slander of title and slander, stating that while slander of title required proof that Lively had disparaged P.O.P.'s title as a leaseholder, slander required only proof that Lively had disparaged P.O.P.'s performance under the Lease. The court stated, "I think the whole thing comes down to whether or not a jury believes that [Lively] committed the independent wrongful conduct of slander and whether or not they then add that to elements of intentional or negligent interference with prospective economic advantage."
At trial, P.O.P. premised its claims for negligent and intentional interference on its slander of title claim. After the trial court indicated that it intended to grant a directed verdict in Lively's favor on the slander of title claim, the trial court, sua sponte, raised the potential applicability of the tort of defamation per quod as the wrongful conduct that could serve, instead, as the basis for P.O.P.'s claims. After P.O.P.'s counsel expressed his "understand[ing]" of the court's reasoning, Lively's counsel objected to P.O.P.'s reformulation of its claims, stating, "It sounds like the plaintiff [has] now shifted from their... amended complaint, to an argument that has never been pled and never been articulated even in their trial brief...."
Lively's counsel responded, "Your honor correctly observed that any issue, any issue regarding the HVAC is an arbitration issue.... And now they're resurrecting the same kind of argument, it's an arbitration subject."
The court replied:
"See, I disagree. I don't think we need to determine whether it's true or false that [Paccione] had the obligation to replace. In fact, the cause of action for defamation doesn't require proof that the statement was false. It requires proof that the person making the statement failed to use reasonable care to determine the truth or falsity of the statement. [¶] So defamation per quod can be telling something that is the truth but doing it, you know, in a way that harms the plaintiff. [¶].... [¶] We don't ask the jury to determine who actually had the obligation. There's also the defense of truth, although we don't know it is was true or not, because that hasn't been decided."
By stating, "that hasn't been decided," the trial court was clearly indicating that the question of who had the duty, under the Lease, to replace the HVAC, would be decided in arbitration. Similarly, during another discussion pertaining to Lively's statements about whose responsibility it was to replace the HVAC, the court stated, "[Lively] could have actually been correct. We don't know yet. That hasn't been decided. We don't know if he was correct or incorrect when he said, 'I don't have the obligation to replace.' It turns out he might not have had the obligation to replace. Someone may take a look at that clause in the [L]ease and say you got the obligation to maintain, that is the obligation to replace. Who knows what that will be?"
Thus, while acknowledging that Lively had a defense to P.O.P.'s interference claims if Lively's statements were true, and that whether such statements were true was to be decided in arbitration, the court nevertheless allowed the jury to consider P.O.P.'s claims.
The trial court instructed the jury that in order for P.O.P. to prevail on its claims of intentional and negligent interference with prospective economic advantage, P.O.P. was required to prove several elements, including that "Lively engaged in wrongful conduct through defamatory statements...." As to the defamatory statements, the trial court instructed the jury in relevant part as follows: "[P.O.P.] claims that [Lively] harmed [P.O.P.] by making the following statement: That [Paccione] did not maintain the [HVAC] units, that it was [Paccione's ] responsibility to replace the [HVAC] units, and that Mr. Lively was not going to do it." The court instructed the jury regarding the defense of truth as follows: "Lively is not responsible for [P.O.P.'s] harm, if any, if [Lively] proves that his statement about [P.O.P.] was true. [Lively] does not have to prove that the statement was true in every detail, so long as the statement was substantially true."
During his closing argument, P.O.P.'s counsel urged the jury to review the Lease to determine whether it was P.O.P.'s responsibility to replace the HVAC units:
"I will challenge you, ladies and gentlemen, when you're back in the that jury room, grab this [L]ease, go through it, look at it, read it, like Mr. Lively should have done before he met with Mr. Rodriguez and see if you can find in there anything at all that says it's the tenant's responsibility to replace that unit."
P.O.P.'s counsel also argued, "Mr. Lively knew when he made the statement, at least with regard to replacement, that that was just a false statement. It was not P.O.P.'s responsibility or Mr. Paccione's responsibility." With respect to Lively's statements concerning P.O.P.'s duty to maintain the HVAC units, P.O.P.'s counsel argued:
"Mr. Lively told Mr. Rodriguez that the responsibility to maintain those HVAC units rested with [P.O.P.], and this is key, I told you this in the very beginning, I stood right here and explained to you the key facts, it was P.O.P.'s responsibility to maintain those HVAC units and he had never done it. That's where the rub comes. Because he had. It was a false statement."
The jury returned verdicts in favor of P.O.P. on its claims for negligent and intentional interference with economic advantage. With respect to each of its verdicts, the jury found that Lively "engage[d] in wrongful conduct through defamatory statements against [P.O.P.]" The jury awarded P.O.P. $150,000 in compensatory damages and $302,784 in punitive damages.
After the jury returned its verdicts, Lively filed a motion for a new trial and a motion for judgment notwithstanding the verdict. In both motions, Lively claimed that the trial court had erred in denying him his right to arbitration. The trial court summarily denied both motions.
In September 2007, the court entered judgment in favor of P.O.P. in the amount of $452,784. Lively timely appealed from the judgment, and P.O.P. timely filed a cross-appeal.
III.
DISCUSSION
P.O.P.'s claims against Lively are subject to the arbitration provision in the Lease
Lively claims that the judgment must be reversed because P.O.P.'s claims against Lively fall within the scope of the arbitration provision in the Lease. "'"'Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of interpretation was introduced in the trial court.'"'" (Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1287.) The parties have not pointed to any relevant conflicting extrinsic evidence concerning whether the Lease's arbitration provision applies to P.O.P.'s causes of action. Accordingly, we exercise our independent judgment in considering Lively's claim.
We assume for purposes of this decision that California law governs the issue of arbitrability in this case. Neither party has argued that the Federal Arbitration Act applies (see 9 U.S.C. § 2 [making enforceable a written arbitration provision in a contract evidencing a transaction involving interstate commerce]), nor has either party argued that the application of federal law would differ in any material respect from California law.
1. Enforcing an arbitration agreement under California law
In Dial 800 v. Fesbinder (2004) 118 Cal.App.4th 32, 44-45, the court outlined the methods by which a party may seek to enforce an agreement to arbitrate under California law:
"'A right to compel arbitration is not... self-executing. If a party wishes to compel arbitration, he must take active and decided steps to secure that right, and is required to go to the court where the [other party]'s action [at law] lies.' [Citation.] Consequently, the party seeking to enforce the contractual arbitration clause must file the [Code of Civil Procedure] section 1281.2 petition in the action at law (or raise it as an affirmative defense in the answer) or else the right to contractual arbitration is waived. [Citations.] The party seeking resolution via contractual arbitration must also file a motion in the action at law to stay it ([Code of Civil Procedure] §§ 1281.4, 1292.8); it will not be stayed automatically. [Citation.] This assertion of a contractual arbitration agreement constitutes a 'plea in abatement' of the action at law. [Citation.]"
Code of Civil Procedure section 1281.2 provides that a party to a written agreement to arbitrate a controversy may file a petition seeking an order directing another party to the agreement to arbitrate the controversy. Unless the trial court finds one of the statutorily enumerated exceptions applicable, the court must order the parties to arbitration. (§ 1281.2.)
Unless otherwise specified, all subsequent statutory references are to the Code of Civil Procedure.
Section 1281.4 provides for a procedure by which a party may seek a stay of litigation pending an "arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State...." (§ 1281.4.) "A motion for a stay of an action on the ground that an issue therein is subject to arbitration shall be made in the court where the action is pending." (§ 1292.8.)
2. General principles of law governing the interpretation of arbitration provisions
"The rules of construction generally applicable to contracts govern the interpretation of... arbitration provisions... that is, we interpret the words in their ordinary sense, according to the plain meaning a layperson would attach to them." (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 774-775.) "'California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration. [Citations.]' [Citation.] However, '[t]here is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate. [Citation.]' [Citation.]" (In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1103-1104.)
3. Arbitration of tort claims that are based on a contractual arbitration provision
There are numerous California cases in which courts have considered whether a contractual arbitration provision required arbitration of a party's tort claims. In Ericksen, supra, 35 Cal.3d 312, the plaintiff law firm (Ericksen) entered into a lease for office space with the defendant owner. (Id. at p. 314.) The lease contained a provision that the parties agreed to arbitrate "any dispute between the parties hereto with respect to the provisions of this [l]ease exclusive of those provisions relating to payment of rent." (Id. at p. 315.) Shortly after occupying the premises, Ericksen began to complain that the air conditioning was defective. (Ibid.) Ericksen sued the owner, alleging, among other causes of action, breach of contract and fraud. Ericksen's fraud claim was based on the allegation that the owner had fraudulently asserted that the premises were in a tenantable condition, when in fact the air conditioning was inadequate. (Ibid. at fn. 1.) Ericksen opposed the owner's petition to compel arbitration on the ground that the owner had induced Ericksen to enter into the lease agreement by way of the alleged fraud. (Ibid.) The Supreme Court concluded that the lease's arbitration provision was broad enough to require arbitration of Ericksen's fraud claim. In reaching this conclusion, the court reasoned:
"Although th[e] language [of the arbitration provision] is not as broad as that considered in [Prima Paint v. Flood & Conklin (1967) 388 U.S. 395,] other cases have found allegations of fraud covered by quite similar arbitration clauses. [Citation.] Moreover,... the issue of fraud which is asserted here 'seems inextricably enmeshed in the other factual issues of the case.' [Citations.] Indeed, the claim of substantive breach ─ that the air conditioning did not perform properly ─ is totally embraced within the claim of fraud ─ that the lessor knew, at the time of the lease, that the air conditioning would not perform. Thus, if the trial court were to proceed to determine the fraud claim it would almost certainly have to decide the claim of substantive breach as well, and the original expectations of the parties ─ that such questions would be determined through arbitration ─ would be totally defeated. However the fraud claim were determined, there would be virtually nothing left for the arbitrator to decide. We conclude that the arbitration clause is broad enough to include this claim of fraud in the inducement." (Id. at p. 324.)
In Merrick, supra, 130 Cal.App.3d 212, a movie producer (Merrick) sued a writer's guild (the Guild), alleging claims that included malicious prosecution and abuse of process. (Id. at p. 215.) Merrick's causes of action were premised on the allegation that the Guild had improperly brought to arbitration a claim that Merrick had breached an agreement to compensate two of the Guild's members. (Ibid.) The Guild filed a petition to compel arbitration on the ground that Merrick's tort claims were subject to arbitration. The arbitration agreement at issue provided for the arbitration of "Any dispute... concerning the interpretation of any of the terms of this Basic Agreement and the application and effect of such terms as determined by an interpretation thereof...." (Id. at p. 217.)
The Merrick court quoted the arbitration provision, as follows:
In concluding that the claims fell within the scope of the arbitration provision, the Merrick court reasoned in part:
"The trial court denied the petition to compel arbitration on the ground that inasmuch as Merrick's claims of malicious prosecution and abuse of process arise out of tort, not contract, they are outside the scope of the parties' collective bargaining agreement. However, a complaint sounding in tort will not in itself prevent arbitration if the underlying agreement embraces the disputed matter. [Citations.] Merrick's complaint does not assert claims which are wholly independent of the arbitration provisions of the basic agreement. On the contrary, the alleged basis of his tort action is that the Guild acted maliciously and for the purpose of inflicting harm upon Merrick in having prosecuted arbitration proceedings against him pursuant to the agreement. Inasmuch as the Guild's allegedly tortious conduct occurred in connection with arbitration proceedings, it cannot be said that the dispute engendered by that conduct is outside the scope of the arbitration provisions simply because Merrick, by his complaint, makes it the basis of causes of action for malicious prosecution and abuse of process. Stated another way, the present action has its roots in the relationship between the parties which was created by the collective bargaining provisions of their agreement. Accordingly, the fact that Merrick's action sounds in tort rather than contract is not a valid basis for the order denying the Guild's petition to compel arbitration." (Id. at pp. 219-220.)
In Vianna v. Doctors' Management Co. (1994) 27 Cal.App.4th 1186, 1190 (Vianna), an employee (Vianna) and an employer entered into an employment agreement. The agreement contained an arbitration clause that provided, "'[I]n the event of any dispute of any kind whatsoever, regarding the meaning, interpretation or enforcement of the provisions of this Agreement, both parties agree that the matter shall be resolved through the use of binding arbitration as provided in California Code of Civil Procedure 1280 et seq.'" (Id. at p. 1188.) During the course of Vianna's employment, the employer's president (Sabella) accused Vianna of "hitting on" another employee's husband. (Ibid.) Sabella told Vianna that he could resign, or he would be terminated. (Ibid.) Vianna resigned and sued the employer for termination in violation of public policy, breach of the implied covenant of good faith and fair dealing, negligent infliction of emotional distress, and defamation. (Id. at p. 1189.) In concluding that all of Vianna's claims were subject to arbitration, the Vianna court reasoned:
"The agreement to arbitrate 'any dispute' regarding 'enforcement' of the provisions of the contract plainly covers Vianna's claim for breach of the covenant of good faith and fair dealing. [Citations.] The other claims all involve duties arising by operation of law, which were allegedly breached during the employment relationship. The parties at least arguably agreed to arbitrate those claims as well when they reduced all of the terms of that relationship to writing, and provided for arbitration 'of any dispute of any kind whatsoever' over the terms of the contract. It cannot be said that the arbitration clause clearly does not apply to those additional disputes, and the doubt must be resolved in favor of arbitration." (Id. at pp. 1189-1190.)
The Vianna court also concluded that the Merrick court's reasoning was applicable in that "all of [Vianna's] claims against [the employer] are rooted in the employment relationship created by their contract." (Vianna, supra, 27 Cal.App.4th at p. 1190.)
The Vianna court noted that although the Merrick court had applied federal law in deciding the question of arbitrability, California law "dictate[d] the same result...." (Vianna, supra, 27 Cal.App.4th at p. 1190.)
In Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401 (Buckhorn), a doctor entered into an employment contract with a medical group. The contract provided, "In the event that a dispute arises between the parties concerning the enforcement or the interpretation of any provisions of this Agreement, such dispute shall be submitted to arbitration for resolution." (Id. at p. 1404, fn. 1.) After the medical group terminated his employment, the doctor filed an action against the group in which he alleged claims including fraud in the inducement, wrongful termination, defamation, and intentional and negligent interference with prospective business advantage. (Id. at p. 1405.) In his complaint, the doctor alleged that the group had published a letter to his patients explaining that he had the left the group because of "marital problems, mental problems, loss of his insurance coverage, and that he was no longer practicing medicine...." (Ibid.)
The Buckhorn court rejected the doctor's contention that the arbitration clause was too narrow to encompass tort claims premised on acts that occurred after his termination, reasoning:
"The issue turns on whether the tort claims are 'rooted' in the contractual relationship between the parties, not when they occurred. For example, Buckhorn's claims for intentional and negligent interference with prospective economic advantage were based on an expectation of future income from his patients. But Buckhorn's patients consulted him in his capacity as an employee of the Medical Group and therefore the employment agreement would inform the extent of any economic interest. Because Buckhorn failed to demonstrate his tort claims were 'wholly independent' of the employment agreement, and any doubts must be resolved in favor of arbitration (Vianna, supra, 27 Cal.App.4th at p. 1189), we conclude all of Buckhorn's claims must be submitted to arbitration." (Buckhorn, supra, 121 Cal.App.4th at pp. 1407-1408.)
B. Application
1. The order on review
As outlined in part II., ante, Lively asserted his right to arbitration in the trial court on several occasions. Lively initially asserted his contractual right to arbitration of P.O.P.'s claims for slander of title and negligence and intentional interference with prospective economic advantage as an affirmative defense in his first amended answer. This was a proper way for Lively to assert an arbitration defense. (See Dial 800 v. Fesbinder, supra, 118 Cal.App.4th at pp. 44-45.)
P.O.P. does not contend on appeal that Lively waived his right to arbitrate P.O.P.'s claims.
For the reasons stated in part III.B.2., post, we conclude that the trial court erred in sustaining P.O.P.'s demurrer to Lively's affirmative defense that P.O.P.'s claims were subject to arbitration. The evidence that P.O.P. presented at trial to prove its claims demonstrates that those claims fall within the scope of the arbitration provision of the Lease. Further, the trial court's error in sustaining P.O.P.'s demurrer to Lively's arbitration defense was clearly prejudicial, since Lively suffered an adverse final judgment at trial on claims that should have been resolved in arbitration.
In light of our conclusion that we must reverse the judgment because of the trial court's erroneous ruling on P.O.P.'s demurrer, we need not consider the trial court's rulings on Lively's subsequent assertions of his contractual defense to arbitration. In part III.B.3, post, we discuss the procedural posture of this case on remand.
2. The arbitrability of P.O.P.'s claims
P.O.P. and Lively agreed in the Lease to arbitrate "any dispute between Lessor and Lessee with respect to the provisions hereof." This provision is equivalent in all material respects to the arbitration provision that was at issue in Ericksen. (See Ericksen, supra, 35 Cal.3d at p. 315 [parties agreed to arbitrate "any dispute between the parties hereto with respect to the provisions of this [l]ease"].)
The Ericksen court concluded that the arbitration provision in that case was "broad enough" to encompass a tort claim that was "inextricably enmeshed" with factual issues that the parties had agreed to arbitrate. (Ericksen, supra, 35 Cal.3d at p. 324.) The Supreme Court reasoned that if a fact finder were to proceed to determine the tort claim, it would "almost certainly" have to decide claims that were subject to arbitration, thereby defeating the parties' expectations that such questions would be decided in arbitration. (Ibid.)
In this case, all of the claims that P.O.P. alleged in its first amended complaint were directly related to P.O.P.'s performance under the Lease (i.e. whether it had maintained the HVAC units) or to its obligations under the Lease (i.e. whether it had a duty to replace the HVAC units). More specifically, it is undisputed that P.O.P. could not prevail on its claims of intentional or negligent interference with prospective economic advantage without demonstrating that Lively had engaged in wrongful conduct. The only wrongful conduct on which the jury could have based its verdicts was Lively's statement that "[Paccione] did not maintain the [HVAC] units, that it was [Paccione's ] responsibility to replace the [HVAC] units," and the statement that Lively was not going to do it. As it did in the trial court, P.O.P. relies on these statements in its cross-appeal to support its claim for slander of title.
P.O.P. does not contend that the statement that Lively was not going to replace the HVAC units was in and of itself wrongful or independently actionable. Rather, it appears that P.O.P.'s theory of the case is that Lively's allegedly false statements concerning P.O.P.'s performance and obligations under the Lease caused P.O.P. damage when Rodriguez terminated his planned acquisition of P.O.P. upon learning that Lively would not replace the HVAC units.
In opposing Lively's motion for a directed verdict on P.O.P.'s slander of title claim, P.O.P.'s counsel argued that Lively's statements pertaining to Paccione's failure to maintain the HVAC units and the statement that it was Paccione's duty to replace the units constituted a slander of title. On appeal, P.O.P. contends, "Lively could reasonably foresee that stating Paccione had never maintained the HVAC, which was why it was dilapidated, and that P.O.P. had to 'replace' it and Lively would not, affected the salability of the assets P.O.P. was selling, one of which was the [L]ease."
Whether P.O.P. fulfilled its duty under the Lease to maintain the HVAC units and whether P.O.P. had a duty under the Lease to replace the HVACs units are issues that were subject to the Lease's arbitration provision, which provided for arbitration of "any dispute between Lessor and Lessee with respect to the provisions hereof." In fact, P.O.P. sought arbitration of these very issues in its February 2006 demand for arbitration. (See pt. II.D., ante.) P.O.P.'s claims are clearly "inextricably enmeshed" with factual issues that the parties had agreed to arbitrate. (Ericksen, supra, 35 Cal.3d at p. 324.)
It is undisputed that truth is a defense to defamation ─ the only wrongful conduct on which P.O.P.'s claims of negligent and intentions interference were based. (See Eisenberg v. Alameda Newspapers, Inc. (1999) 74 Cal.App.4th 1359, 1382 [noting that truth is a defense to defamation actions generally, and that a plaintiff bears the burden of proving falsity in cases involving statements of public concern].) In order for P.O.P. to prevail on its claims, the jury had to determine whether Lively's statements concerning P.O.P.'s performance and obligations under the Lease were or were not true. On appeal, P.O.P. asserts, "Lively's statements that Paccione never maintained the HVAC system and had to replace it were lies, as the jury found," thus acknowledging that the truth of the statements was at issue in the case.
Similarly, during closing arguments, P.O.P.'s counsel urged the jury to review the Lease to determine whether it was P.O.P.'s responsibility to replace the HVAC units. P.O.P.'s counsel also argued that the assertion that P.O.P. had never maintained the HVAC was "false."
The same analysis applies with respect to P.O.P.'s slander of title claim. Falsity is an essential element of a claim of slander of title. (See Truck Ins. Exchange v. Bennett (1997) 53 Cal.App.4th 75, 84.) If the trial court had allowed P.O.P. to present its slander of title claim to the jury, the jury would have had to determine whether Lively's statements concerning P.O.P.'s performance and obligations under the Lease were true. Thus, in order for the jury to find in P.O.P.'s favor, the jury would "almost certainly" have had to decide issues that were subject to arbitration under the arbitration provision in the Lease, thereby defeating the parties' expectations that such issues would be decided only in arbitration. (Ericksen, supra, 35 Cal.3d at p. 324.)
To the extent that there might be any doubt as to whether Ericksen requires that P.O.P.'s claims be arbitrated, any such doubt is removed by an application of the "roots" theory of arbitrability articulated by the courts in Merrick, Vianna, and Buckhorn. Under this theory, claims that have "roots" in the parties' contractual relationship, and that are not "wholly independent of the arbitration provisions" of the contract, are subject to arbitration. (Merrick, supra, 130 Cal.App.3d at p. 217.)
P.O.P.'s claims of defamation and slander of title are clearly rooted in the parties' contractual relationship, and cannot be said to be wholly independent of the Lease's arbitration provisions. P.O.P.'s claims are thus subject to arbitration. (Accord Wolitarsky v. Blue Cross of California (1997) 53 Cal.App.4th 338, 348 [applying Merrick and Vianna and concluding that health insurance plan member was required to arbitrate dispute that Blue Cross's imposition of deductible for maternity benefits constituted gender discrimination under civil rights statute where plan provided, "'Any dispute between the Member and Blue Cross regarding the decision of Blue Cross must be submitted to binding arbitration if the amount in dispute exceeds the jurisdictional limits of the small claims court'"].)
In all of these cases ─ Merrick, Vianna, and Buckhorn ─ the Court of Appeal concluded that arbitration clauses that were narrower than the one contained in the Lease applied to claims whose connections to the parties' contractual relationship were more attenuated than the connection in this case. In Merrick, the arbitration clause was restricted to disputes "concerning the interpretation of any of the terms of [an agreement] and the application and effect of such terms as determined by an interpretation thereof...." (Merrick, supra, 130 Cal.App.3d at p. 217.) The Merrick court concluded that this clause applied to a party's claims of malicious prosecution and abuse of process, premised on a separate arbitration conducted under the agreement. (Id. at pp. 219-220.) In Vianna and Buckhorn, the courts concluded that employment agreements that required arbitration of disputes involving the interpretation or enforcement of the provisions of the agreement, required arbitration of defamation actions brought by an employee against the employer. (Vianna, supra, 27 Cal.App.4th at pp. 1189-1190; Buckhorn, supra, 121 Cal.App.4th at pp. 1407-1408.) Further, unlike the present case, in which the allegedly defamatory statements pertain to issues of performance and duties under the Lease, there is nothing in either Vianna or Buckhorn that suggests that resolution of the defamation claims at issue in those cases would have required the fact finder to resolve issues that were subject to the arbitration provisions in the employment agreements.
More specifically, as noted in part III.A.1., ante, in Vianna, supra, 27 Cal.App.4th 1186, the agreement required arbitration of disputes "'regarding the meaning, interpretation or enforcement of the provisions of this Agreement'" (id. at p. 1188); in Buckhorn, supra, 121 Cal.App.4th 1401, the parties agreed to arbitrate disputes "'concerning the enforcement or the interpretation of any provisions of this Agreement....'" (Id. at p. 1404, fn. 1.)
P.O.P. does not dispute that the parties agreed to arbitrate the scope of their duties under the Lease and whether each party had performed its duties. P.O.P. also does not dispute that its claims in the first amended complaint were premised on such duties under the Lease. However, P.O.P. contends that the "narrow" arbitration clause in the Lease does not encompass tort claims that are based on contractual duties, and that P.O.P. was not required to "arbitrate the existence or truth of the historical and evidentiary facts" in establishing such claims.
In its motion for attorney fees filed in the trial court, P.O.P. argued that this action arose from Lively's statements concerning the parties' obligations under the Lease and their performance of obligations under the Lease, stating, "The dispute which gave rise to this lawsuit arose from Mr. Lively's fraudulent statement to Louis Rodriguez relating to P.O.P.'s obligations under the terms of the written Lease, and P.O.P.'s failure to meet those obligations."
P.O.P.'s attempts to distinguish Merrick, Vianna, and Buckhorn are entirely unpersuasive. P.O.P. claims that each of these cases purportedly involved "broad arbitration clauses." For example, selectively quoting the arbitration clause in Merrick, P.O.P. asserts that the court concluded that an "arbitration clause that covered 'any dispute' was broad enough to cover a tort claim...." As noted above, the arbitration clause in Merrick was far narrower than P.O.P. suggests, applying to "Any dispute... concerning the interpretation of any of the terms of this Basic Agreement and the application and effect of such terms as determined by an interpretation thereof" (Merrick, supra, 130 Cal.App.3d at p. 217.) This portion of the arbitration clause in Merrick ─ restricted to disputes concerning the interpretation, application, and effect of the terms of the agreement ─ is narrower than the arbitration provision in the Lease, which applies to any "any dispute between Lessor and Lessee with respect to the provisions hereof...."
Neither party cited Ericksen in its briefs in this court.
The arbitration clause in Merrick was broader in one respect than the clause in the Lease in that it provided that an arbitrator, rather than a court, would determine whether an action was subject to arbitration. (See fn. 17, ante.) However, the Merrick court's conclusion that tort claims may be subject to a contractual arbitration clause when they are rooted in the parties' contractual relationship was not premised on this portion of the arbitration clause. (Merrick, supra, 130 Cal.App.3d at pp. 219-220.)
Similarly, with regard to Vianna, P.O.P. asserts in its brief that the arbitration clause in that case applied to "any dispute of any kind whatsoever." In actuality, the arbitration clause in Vianna provided, "[I]n the event of any dispute of any kind whatsoever, regarding the meaning, interpretation or enforcement of the provisions of this Agreement, both parties agree that the matter shall be resolved through the use of binding arbitration...." (Vianna, supra, 27 Cal.App.4th at p. 1188.) Thus, contrary to P.O.P.'s suggestion in its brief, the arbitration clause at issue in Vianna was narrower than the one in the Lease.
Finally, P.O.P. claims that Buckhorn, supra, 121 Cal.App.4th at page 1404, involved a broad arbitration clause in a professional services agreement (PSA) that applied to "[a]ny dispute between the parties." However, the Buckhorn court's holding was actually premised on an entirely separate arbitration clause contained in a different agreement. The Buckhorn court expressly stated ─ twice ─ that it did not have to consider whether the broad arbitration provision in the PSA applied to the parties' dispute, because arbitration was required under a provision in a separate employment agreement. (Buckhorn, supra, 121 Cal.App.4th at pp. 1403, 1408.) The arbitration provision in the employment agreement "provide[d] for mandatory arbitration of disputes 'concerning the enforcement or the interpretation of any provisions of this Agreement.'" (Id. at p. 1403.) As in Merrick and Vianna, the arbitration agreement at issue in Buckhorn was narrower than the arbitration provision contained in the Lease. P.O.P.'s attempt to distinguish Buckhorn on the ground that "the arbitration clause in Buckhorn was broad ('any dispute between the parties')," and "[t]he arbitration clause in P.O.P.'s [L]ease is narrow ('provisions of the agreement')," is based on P.O.P.'s erroneous assertion of the terms of the arbitration provision at issue in that case.
To the extent that P.O.P. maintains that Bono v. David (2007) 147 Cal.App.4th 1055, 1067 (Bono), or Medical Staff of Doctors Medical Center in Modesto v. Kamil (2005) 132 Cal.App.4th 679, 681 (Kamil), supports the conclusion that P.O.P.'s claims against Lively are not arbitrable, we are not persuaded. In Bono, the arbitration provision applied only to controversies "involving the construction or application of any provision of this Agreement...."(Bono, supra, 147 Cal.App.4th at p. 1058, italics omitted.) The plaintiff's defamation claim was based on an e-mail that the defendant sent to a third party in which the defendant allegedly made defamatory statements about the plaintiff's mental fitness and character. (Id. at p. 1060.) The Bono court concluded that the "narrow" arbitration provision (id. at p. 1069) did not apply to the defamation claim because the claim "did not involve contractual interpretation" (id. at p. 1058), and agreed with the trial court that the claim was essentially "'a stand-alone'" action. (Ibid.)
P.O.P. cited both cases in its brief, but did not discuss either case in any detail.
The arbitration provision in Bono was significantly narrower than the provision in the Lease. (Compare Bono, supra, 147 Cal.App.4th at p. 1058 [requiring arbitration of controversies "involving the construction or application of any provision of this Agreement") with the Lease [requiring arbitration of any dispute "with respect to the provisions [of the Lease]".) Further, unlike the "'stand-alone'" action in Bono, in this case, P.O.P.'s claims were clearly intertwined with the parties' duties under the Lease.
In Kamil, the parties had entered into an agreement that provided in relevant part, "'In the event that any problem or dispute concerning the terms of this Agreement... is not satisfactorily resolved, [insurance company] and [medical group] agree to arbitrate such problem or dispute.'" (Kamil, supra, 132 Cal.App.4th at p. 681.) The medical group brought a defamation claim against the insurance company based on the insurance company's issuance of press releases and other writings that stated that 59 percent of the heart procedures performed by the medical group were medically unnecessary. In concluding that the defamation claim was not arbitrable, the Kamil court reasoned:
"Here the contract between [the insurance company] and [the medical group] is to provide medical care for [the insurance company's] beneficiaries. The question is whether the seemingly innocuous phrase 'concerning the terms of' the agreement to provide medical care can reasonably be said to include the alleged malicious destruction of the [the medical group's] personal and professional reputations. To ask the question is to answer it. The answer is no. There may be cases where the alleged defamation is so intimately bound with the terms of the agreement that arbitration is appropriate. But the terms of this agreement do not give [the insurance company] carte blanche to publicly pillory [the medical group] in press releases and newspaper reports as alleged here. The defamation complained of here no more concerns the terms of the agreement, than would a punch in the nose during a dispute over a medical billing." (Id. at pp. 683-684, italics added.)
In contrast, P.O.P.'s claims are intimately related to the provisions of the Lease.
In sum, courts in numerous cases involving arbitration provisions analogous to the provision contained in the Lease have concluded that claims related to the parties' contractual relationship were subject to arbitration. In contrast, we are aware of no case law, and P.O.P. has cited none, in which an arbitration clause worded similarly to the one in this case was held not to encompass tort claims that were as closely related to the parties' contractual relationship as the tort claims in this case.
We conclude that the trial court committed prejudicial error in sustaining P.O.P.'s demurrer to Lively's first amended answer in which Lively raised the affirmative defense that P.O.P.'s claims were subject to arbitration.
3. Procedure on remand
All of the claims that P.O.P. alleged in its first amended complaint are subject to arbitration. The trial court thus erred in sustaining P.O.P.'s demurrer to Lively's affirmative defense of arbitration, and this error requires reversal of the judgment. However, this court may not direct the trial court to order arbitration of P.O.P.'s claims, because Lively has not filed a petition to compel arbitration. Under these circumstances, we conclude that the proper remedy is to restore the case to the procedural posture as of the time of the trial court's erroneous ruling.
As noted in part II.E., ante, Lively first asserted his right to arbitration by way of an affirmative defense in his first amended answer. (See Dial 800 v. Fesbinder, supra, 118 Cal.App.4th at pp. 44-45 ["party seeking to enforce the contractual arbitration clause must file the [Code of Civil Procedure] section 1281.2 petition in the action at law (or raise it as an affirmative defense in the answer)"].)
On remand, the trial court is directed to vacate its order sustaining P.O.P.'s demurrer to Lively's first amended answer, and to enter a new order overruling P.O.P.'s demurrer as to Lively's affirmative defense of arbitration. The trial court is further directed to vacate any orders that were entered after the order sustaining the demurrer to Lively's amended answer, including the order granting Lively's motion for a directed verdict on P.O.P.'s slander of title claim. The trial court shall allow Lively a reasonable period of time to reassert his right to contractual arbitration of P.O.P.'s claims of slander of title and negligent and intentional interference with economic advantage. The trial court shall conduct any further proceedings concerning the arbitrability of P.O.P.'s claims in a manner consistent with this opinion.
IV.
DISPOSITION
The judgment is reversed. The action is remanded to the trial court with directions to proceed as set forth in part III.B.3., ante. Lively is entitled to costs on appeal.
WE CONCUR: NARES, Acting P. J., McDONALD, J.
As noted in footnote 6, ante, the status of the related arbitration between the parties is not clear from the record. However, as Lively's counsel's remarks suggest, it appears that the arbitration had not been completed as of the time of trial. P.O.P.'s counsel also seemed to indicate that the arbitration had not been completed as of the time of trial stating, "[I]t's just sitting in limbo out there at this point."
"Article 10 (entitled 'Grievance and Arbitration') provides in part: 'A. Matters Subject to Grievance and Arbitration (General) [¶] Except as otherwise specifically provided in this Article or elsewhere in this Basic Agreement, the following matters shall be submitted to grievance and thereafter to arbitration as hereinafter provided, and no other matters shall be submitted to grievance or arbitration: [¶] 1. Any dispute between the Guild and the Company concerning the interpretation of any of the terms of this Basic Agreement and the application and effect of such terms as determined by an interpretation thereof.... [¶] C. Matters Subject to Arbitration but not Grievance [¶] Notwithstanding anything elsewhere contained in this Article 10, the following matters shall be submitted to arbitration but not to grievance: [¶] 1. Any dispute as to whether the arbitrator has jurisdiction or whether any matter is arbitrable, provided however, that the arbitrator may not order an arbitration of any matter not arbitrable as provided above....' Article 12 (entitled Court Proceedings) provides in pertinent part: 'C. Nothing in this Basic Agreement shall impair, affect or limit the right of the Company, the Guild or any writer to assert and exercise any and all appropriate legal or equitable rights or remedies to which such Company, Guild or writer is entitled in any court of competent jurisdiction as to any dispute which is not subject to grievance or arbitration pursuant to this Basic Agreement....'" (Id. at pp. 217-218.)