Opinion
G054766
01-11-2018
CELESTE SANCHEZ, Plaintiff and Respondent, v. AVERY PRODUCTS CORPORATION, et al., Defendants and Appellants.
Sheppard, Mullin, Richter & Hampton, Ronda D. Jamgotchian, Paul Berkowitz, and Michael T. Campbell for Defendants and Appellants. Michael J. Faber for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00867965) OPINION Appeal from an order of the Superior Court of Orange County, Gregory H. Lewis, Judge. Affirmed. Sheppard, Mullin, Richter & Hampton, Ronda D. Jamgotchian, Paul Berkowitz, and Michael T. Campbell for Defendants and Appellants. Michael J. Faber for Plaintiff and Respondent.
Avery Products Corporation (APC) and CCL Industries appeal from the trial court's order denying their motion to compel arbitration of Celeste Sanchez's employment wrongful termination lawsuit. They maintain the court erred in concluding the arbitration agreement was unenforceable. We conclude the contention lacks merit, and we affirm the order.
FACTS
I. Employment with Avery Dennison
In October 2010, Avery Dennison Corporation hired Sanchez as a systems coordinator in its Avery Office Products division. She and "Avery Dennison Corporation" executed an arbitration agreement (the Agreement).
Paragraph two of the Agreement provided the following description: "I understand that any reference in this Agreement to the Company will be a reference also to all subsidiary and affiliated entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them."
Paragraph three described the types of claims covered. "The Company and I mutually consent to the resolution by arbitration of all claims or controversies ('claims'), whether or not arising out of my employment (or its termination), that the Company may have against me or that I may have against the Company or against its officers, directors, employees or agents in their capacity as such or otherwise. The claims covered by this Agreement include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for discrimination, harassment or retaliation (including, but not limited to, race, sex, religion, national origin, age, marital status, or medical condition, handicap or disability); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration procedure different from this one), and claims for violation of any federal, state, or other governmental law, statute, regulation, or ordinance, except claims excluded in the following paragraph. The Company and I mutually agree to and expressly waive our rights to a jury trial with respect to all claims covered by this Agreement including, but not limited to, statutory claims for discrimination, harassment and retaliation."
Relevant to this appeal, paragraph 14 described the scope of coverage and rules for modification and revocation. "This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a written statement signed by the parties which specifically states an intent to revoke or modify this Agreement." II. Employment with CCL Industries
In June 2013, Sanchez agreed to work for CCL Industries. She executed a written acceptance of an employment offer (Employment Agreement). The Employment Agreement explained, "CCL Industries Inc., directly and through its subsidiary companies ('CCL'), is planning to acquire the Avery Dennison Corporation ('Avery') operation at which you are currently employed. This is CCL's Employment Offer to you. Please read this Employment Offer carefully and sign below to accept all of the terms of the offer."
The Employment Agreement contained five conditions of employment. In addition to wage rates and bonus terms, it stated, "This Employment Offer is contingent on (i) your written acceptance of this CCL Employment Offer as provided below, and (ii) CCL's completion of acquisition of the Avery operation at which you are currently employed."
In addition, the Employment Agreement required Sanchez's agreement to the following term: "You agree that your acceptance of CCL's Employment Offer constitutes your voluntary cessation of your employment with Avery effective on the date CCL completes its acquisition of the Avery operation in which you are employed." (Italics added.) CCL repeated this same condition in the final section of the contract directly above the place for Sanchez's signature.
It stated the following: "By signing below I agree to the following:
"A. I accept employment with CCL subject to the terms and conditions set forth in CCL's above Employment Offer.
"B. I acknowledge and agree that effective as of the date on which CCL completes its acquisition of the Avery operation at which I am currently employed, I am voluntarily ceasing my employment with Avery."
In July 2013, CCL Industries acquired the Avery Office Products division of Avery Dennison Corporation (Avery). At the time of the acquisition, all of the division's employees became employed by APC, a wholly owned subsidiary of CCL Industries. III. The Lawsuit
In August 2016, Sanchez filed a lawsuit against CCL Industries and APC (collectively referred to in the singular as CCL unless the context requires otherwise). The complaint contained claims for disability discrimination, retaliation, medical condition discrimination, and wrongful termination. Sanchez alleged that after a medical leave of absence following her breast cancer diagnosis, she returned to work under a temporary restriction not to lift heavy items. Ten days after returning, Sanchez received "an unjustified and fallacious written performance warning." The following week, her employers accused her of failing to hold a door open for a colleague, and "ostensibly for that reason," terminated her employment the next day. IV. Motion to Compel Arbitration
CCL moved to compel arbitration based on the Agreement Sanchez executed in 2010 when hired by Avery. It argued the Agreement specified it was between Sanchez, Avery, and all successors in interest. CCL presented evidence it acquired "all the debts and liabilities of Avery . . . and became the employer of [Sanchez] and her co-workers . . . ." It noted none of the terms or conditions of Sanchez's employment changed after the acquisition.
The motion was supported by two declarations. CCL's counsel, Michael T. Campbell, stated Sanchez refused to arbitrate her claims despite being sent a copy of the Agreement. CCL's human resources manager, Coleen Alberico, declared she was familiar with CCL's business operations and Sanchez's personnel files. She stated Sanchez accepted CCL's employment offer in June 2013, and her terms of employment (work location, job duties, supervisor, and at-will employment status) remained the same. She recalled, "[CCL] acquired Avery . . . including the Avery Office Products Division, as part of an asset acquisition and stock transaction. At the time of the acquisition, all of the Avery . . . employees became employees of [APC], which is a wholly owned subsidiary of CCL . . . . As a result of the acquisition, CCL assumed all of the debts and liabilities of Avery . . . . Other than becoming an employee of [CCL] via the acquisition, there were no changes to the terms or conditions of [Sanchez's] employment."
In her opposition, Sanchez argued, "[CCL] claim - falsely - that they are successors in interest to [the] arbitration agreement with her prior employer, a corporation still in business but a stranger to this litigation." She concluded CCL was not a party to the Agreement with Avery and for this reason the motion should be denied.
Sanchez argued CCL acquired only one division (the Avery Office Products division) of the entire Avery corporate entity. She noted CCL's employment offer was conditioned on her severing all employment relations with Avery, who did not assign the arbitration agreement. CCL's Employment Agreement did not mention "carrying over" the Agreement or requiring Sanchez to enter into a new arbitration agreement.
Sanchez provided proof that after she accepted CCL's employment offer, CCL formed a new corporation, APC. These two entities became her new co-employers and neither one asked her to sign an arbitration agreement. She also provided proof Avery, her former employer, "remains to this day an active corporation publically traded on the New York Stock Exchange." Sanchez asserted that Alberico's declaration, stating CCL acquired Avery was false. She maintained CCL purchased "two unincorporated business lines and under California law there is no 'successor' status."
CCL filed a reply arguing arbitration agreements must be liberally interpreted, and there was no need to acquire the entire Avery corporation in order to be called a successor. CCL maintained it qualified as a successor by purchasing the division where Sanchez worked. Alberico submitted a supplemental declaration stating that when describing the acquisition she "inadvertently implied" CCL obtained the entire Avery corporation.
Sanchez filed a supplemental opposition, providing additional legal authority to support her argument CCL was not a successor to the Agreement. Sanchez submitted a declaration describing what she was told during the acquisition process. She declared, "Before CCL . . . became my employer, they had a number of 'town hall meetings' for the employees of the Avery Products Division of Avery . . . . The stated purpose of those meetings was to acquaint the employees with the changes that would take place upon their acquisition of the division. [¶] [] Among other things, we were told that we would have to sever our employment relationships with Avery . . . and sign a new contract with CCL . . . and that there would be changes to our benefits packages, including insurance. Once the change did take place, my insurance coverages did change, other providers were designated, and the co-pays changed. Additionally, my hours were increased from 37.5 per week to 40 hours per week, and the frequency of being paid changed. Avery . . . paid on the 1st and 15th of every month while CCL pays every other Thursday."
CCL filed a supplemental reply brief. It presented additional legal analysis on the issue of whether it was a successor to the Agreement. It argued Sanchez's declaration should be disregarded as untimely, and in any event, she did not describe any material changes to the terms and conditions of her employment following the acquisition. V. The Court's Ruling
The court's minute order stated the following: "[CCL and APC] contend they are entitled to enforce the arbitration agreement entered by [Sanchez] with her former employer (Avery . . .) because . . . CCL . . . is Avery['s] successor and . . . [APC] is a fully-owned subsidiary of CCL. However, even assuming CCL qualifies as a successor, the Employment Offer signed by [Sanchez] and CCL effectively terminated the arbitration agreement. The Offer provided that [Sanchez] would have the same hourly rate, work at the same location, and be terminable at-will. [Sanchez's] bonus opportunity would remain. Benefit programs were to be implemented by CCL—meaning they could change. The Offer further stated that [Sanchez's] employment with Avery . . . would cease when [CCL] completed the acquisition. And, directly above the signature line it stated:
"'A. I accept employment with CCL subject to the terms and conditions set forth in CCL's above Employment Offer. [¶] B. I acknowledge and agree that effective as of the date on which CCL completes its acquisition of the Avery operation at which I am currently employed, I am voluntarily ceasing my employment with Avery. [Emphasis added.]' [Citation.]
"The statement that [Sanchez] was accepting employment with [CCL] subject to the terms and conditions set forth 'above' effectively negated any other terms of [Sanchez's] prior employment with Avery Dennison, including the arbitration agreement.
"[CCL] points out that the arbitration agreement with [Sanchez's] prior employer states: [¶] '14. This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a written statement signed by the parties which specifically states an intent to revoke or modify this Agreement.' [Citation.] [¶] And, it is true that the Employment Offer referenced above did not state that it was revoking the arbitration agreement. But, it was in writing and it said [Sanchez's] employment was subject to the terms and conditions set forth in the offer. It did not say that it was subject to any other terms, i.e., the Employment Offer was a superseding employment contract[,] which did not incorporate the previous arbitration agreement.
"The motion to compel arbitration is thus denied. [Sanchez's] contention that [CCL] waived the[] right to arbitrate is moot."
DISCUSSION
CCL maintains the trial court erred in ruling its "offer letter voided Sanchez's Arbitration Agreement." To support this argument, CCL relies on the following evidence: (1) the Agreement mandated revocation or modification must be in writing, and there was "no signed written statement" by the parties revoking the agreement; (2) "Sanchez's offer letter" does not revoke the contract; (3) Sanchez's offer letter ceasing employment with Avery "is typical in a successorship situation" and does not indicate a prior agreement to arbitrate would be void.
This argument jumps into the middle of the analysis generally used when reviewing motions to compel arbitration. "'[W]hen considering a motion to compel arbitration, the court must initially "determine whether the parties agreed to arbitrate the dispute in question." [Citation.] "This determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." [Citation.]' [Citations.]" (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1283.)
Turning to the first consideration, "Code of Civil Procedure section 1281.2 allows a party to an arbitration agreement to petition to compel arbitration. By stating that a party to an arbitration agreement may petition to compel arbitration, the statute assumes that a proceeding to compel arbitration will be between the signatories to the agreement. [Citation.]" (Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, 1416 (Marenco).) Although California has a strong public policy favoring arbitration, "'"'there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate . . . .'"'" (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1352 (DMS Services).)
Here, the two signatories to the agreement, Sanchez and Avery, were certainly obligated to arbitrate disputes arising from the employment relationship. It did not matter that Sanchez was no longer employed by Avery. The Agreement specified it "shall survive the termination of [her] employment."
CCL did not sign the Agreement. Thus, the first issue to be decided is whether a nonsignatory has standing to enforce the Agreement. "Where, as here, there are no disputed issues of fact, we determine whether a nonsignatory may enforce an arbitration agreement under the de novo standard of review. [Citation.]" (Marenco, supra, 233 Cal.App.4th at pp. 1416-1417.)
There are six theories by which a nonsignatory may compel or be bound to arbitrate. These theories are as follows: "'(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary' [citations]." (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513 [collecting cases of each theory].) These exceptions are based on a significant relationship between the nonsignatory and a signatory that makes it equitable to allow the nonsignatory to enforce the agreement against a signatory. (DMS Services, supra, 205 Cal.App.4th at p. 1353 ["These exceptions . . . 'generally are based on the existence of a relationship between the nonsignatory and the signatory, such as principal and agent or employer and employee, where a sufficient "identity of interest" exists between them'"]; NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 76 ["The common thread of all the above cases is the existence of an agency or similar relationship between the nonsignatory and one of the parties to the arbitration agreement"].)
Under the equitable estoppel exception, a party to an arbitration agreement may be required to arbitrate with a nonparty after a merger involving a signatory. Two California courts recently recognized this theory of standing. (Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 8 (Jenks); Marenco, supra, 233 Cal.App.4th at p. 1416.)
In the Marenco case, an employee asserted violations of state wage and unfair competition laws. (Marenco, supra, 233 Cal.App.4th at p. 1412.) The employer, DirecTV, moved to compel arbitration on the theory it was the successor to an arbitration agreement between the employee and a prior employer, 180 Connect, Inc. (Connect). (Ibid.) The employee argued he never agreed to arbitrate disputes with DirecTV. (Id. at p. 1416.)
The court in Marenco stated there were no California cases addressing "whether a nonsignatory defendant may enforce an arbitration agreement between a signatory plaintiff and a corporation that was acquired by the nonsignatory defendant, which assumed all of the rights and obligations of the acquired corporation." (Marenco, supra, 233 Cal.App.4th at pp. 1417.) The court described what happens during a merger under Corporations Code section 1107, subdivision (a). (Id. at pp. 1418-1419.) Simply stated, the disappearing corporation no longer exists and the surviving corporation "succeeded to all rights and liabilities of the disappearing corporation. [Citations.]" (Id. at p. 1419.) In response to the employee's argument there was insufficient evidence Connect ceased to exist after the acquisition, the court explained the contention was irrelevant.
Corporations Code section 1107 provides, "(a) Upon merger pursuant to this chapter the separate existence of the disappearing corporations ceases and the surviving corporation shall succeed, without other transfer, to all the rights and property of each of the disappearing corporations and shall be subject to all the debts and liabilities of each in the same manner as if the surviving corporation had itself incurred them." --------
"By suing DirecTV for unpaid wages, [the employee] acknowledged the existence of an employment relationship with the entity that survived the merger. DirecTV, the surviving corporation, assumed all of the disappearing corporation's rights and liabilities, including the obligations owed to the disappearing corporation's employees. Although DirecTV was not a signatory to the employment arbitration agreement between [the employee] and . . . Connect, there is no doubt that the agreement formed one of the terms of [his] employment. When [the employee] sued DirecTV for violating the terms of his employment, DirecTV was entitled to invoke the arbitration clause to compel [him], as a signatory plaintiff, to arbitrate his claims pursuant to the employment agreement. . . . '[U]nder both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are "intimately founded in and intertwined" with the underlying contract obligations. [Citations.] By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. [Citations.]'" (Marenco, supra, 233 Cal.App.4th at pp. 1419-1420, italics added.)
The court added, "We would reach the same conclusion regardless of whether . . . Connect disappeared on the date of the merger. The evidence is undisputed that DirecTV acquired all of . . . Connect's assets, employees, rights, and liabilities. There is no indication that the original terms of . . . employment were modified, superseded, revoked, canceled, or nullified in any manner. The record thus supports a reasonable inference that the . . . Connect employees who continued working after the merger implicitly accepted DirecTV's decision to maintain their existing terms of employment, including the arbitration agreement. [Citation.] [The employee] offers no persuasive authority to refute the general contract law principle that his continued employment provided implied consent to maintaining the existing terms of employment, including the arbitration agreement. [Citation.]" (Marenco, supra, 233 Cal.App.4th at p. 1420, italics added.)
The court noted the employee did not argue the agreement was modified or rescinded. He only maintained a nonsignatory lacked standing to enforce it. "Under these circumstances, the fact that [the employee] did not sign a new arbitration agreement with DirecTV is not a sufficient basis to invalidate his original agreement, which constituted one of the established terms of his employment and was never extinguished, rescinded, altered, or revised. Based on the record and arguments presented to us, [the employee's] continued employment with DirecTV served as his implied consent to preserving the original terms of employment, including the arbitration agreement. Our determination is consistent with the established principle that '[a] voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.' [Citations.]" (Marenco, supra, 233 Cal.App.4th at p. 1420.)
The Jenks case involved an attorney who sued his employer for refusing to pay certain disability benefits, violating the terms of his resignation agreement. (Jenks, supra, 243 Cal.App.4th at pp. 4-5.) His employer, "DLA Piper successfully moved to compel arbitration as the successor by merger to an arbitration agreement entered into between [the attorney] and his prior employer." (Id. at p. 5.) The ruling was affirmed on appeal after the court determined the Marenco holding was dispositive of the attorney's arguments.
In addition, the Jenks court rejected the attorney's argument that under California and Maryland corporate merger laws, surviving entities acquire only the rights and property of the disappearing entity and not the "'underlying terms and conditions of those employment relationships' that were negotiated by the disappearing entity." (Jenks, supra, 243 Cal.App.4th at p. 12.) The attorney argued, DLA Piper, a partnership organized under Maryland law, could "not unilaterally bind its predecessor's employees to continue their employment under the terms and condition of their prior employment relationship without their consent." (Ibid.) The court disagreed, concluding, "[B]oth states' laws support the conclusion that successor partnerships acquire the right to enforce the contractual rights of the prior entity." (Id. at p. 13.)
Under Maryland's merger laws, "The surviving entity becomes subject to all of the former entity's debts and liabilities as if the surviving entity had incurred them itself [and] ['t]he assets of each . . . company . . . transfer to, vest in, and devolve on the successor without further act or deed.' [Citation.]" (Jenks, supra, 243 Cal.App.4th at p. 12, fn. omitted.) "It is not unreasonable to construe a partnership's contractual rights as 'assets.' [Citation.]" (Ibid.)
"The analogous California statute is even clearer as to the accession of contract rights by merger [of a limited liability partnership]. Under our state's Corporations Code section 16914, subdivision (a)(1), '[w]hen a merger takes effect . . . [¶] (1) The separate existence of the disappearing partnerships . . . ceases and the surviving partnership . . . shall succeed, without other transfer, act, or deed, to all the rights and property whether real, personal, or mixed, of each of the disappearing partnerships . . . and shall be subject to all the debts and liabilities of each in the same manner as if the surviving partnership . . . had itself incurred them.' (Italics added.)" (Jenks, supra, 243 Cal.App.4th at p. 13.)
Two important facts distinguish these cases from the one at hand. First, our case does not concern two merging partnerships. Corporations Code section 16914 is inapplicable because it concerns the merger of partnerships under the Uniform Partnership Act of 1994. Avery and CCL are both corporate entities. The sale of a business operated as a division of corporation presents unique legal issues. "The principal difference in the sale of a division of a business and the sale of an entire business is separating the assets of the division from the assets of the seller's remaining businesses." (Hyman, 3 Corporation Forms (2017) Purchase of a division, § 37:38.) CCL admits it did not acquire all of Avery's assets, only some related to Sanchez's division. Avery drafted an agreement that specified it retained the right to arbitrate controversies with Sanchez following her termination. Nothing supports the theory Avery relinquished this right and granted CCL the right to stand in its shoes and enforce its Agreement with Sanchez.
Second, Sanchez unconditionally terminated her employment with Avery before the acquisition. Unlike the Marenco and Jenks cases, here there was no "continued employment." After affirmatively agreeing to end the original terms of her employment with Avery, there was no basis to "impl[y]" Sanchez later consented "to preserving" just one condition of that prior relationship, i.e., the arbitration agreement. (Marenco, supra, 233 Cal.App.4th at p. 1420.) In Marenco, because there was "no indication" employment terms were "revoked, canceled, or nullified in any manner" the court concluded the employees "implicitly accepted" their new employer's "decision to maintain their existing terms of employment, including the arbitration agreement." (Ibid.) Here, CCL asked Sanchez to affirmatively end her prior employment relationship, clearly indicating CCL did not intend to maintain the existing terms. Sanchez's voluntary termination was unconditional and she executed a new agreement with her new employer (CCL) consenting to new terms of employment.
We conclude CCL, a nonsignatory to the Agreement, lacked standing to enforce it under a theory of equitable estoppel or any of the other exceptions described above. In this case, there is no evidence of a qualifying relationship between the nonsignatory and a signatory to make it equitable to allow CCL to enforce the Agreement. (See DMS Services, supra, 205 Cal.App.4th at p. 1353.) The court properly denied the motion to compel arbitration.
DISPOSITION
The order is affirmed. Respondent shall recover her costs on appeal.
O'LEARY, P. J. WE CONCUR: FYBEL, J. IKOLA, J.