Opinion
G054836
07-31-2018
KYLE FJELSTAD, Plaintiff and Respondent, v. ERIC COLLINS et al., Defendants and Appellants.
Burkhalter Kessler Clement & George, Alton Burkhalter and Rosamund M. Lockwood for Defendants and Appellants. Call & Jensen, Mark Eisenhut and Kevin Jackson 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2016-00888895) OPINION Appeal from an order of the Superior Court of Orange County, James L. Crandall, Judge. Reversed and remanded with directions. Burkhalter Kessler Clement & George, Alton Burkhalter and Rosamund M. Lockwood for Defendants and Appellants. Call & Jensen, Mark Eisenhut and Kevin Jackson for Plaintiff and Respondent.
* * *
Defendants Eric Collins, Brian Boling (Boling), Zeev Collin, and William Cheney (Cheney; all four collectively defendants) appeal the denial of their motion to compel arbitration of claims for breach of fiduciary and statutory duties, negligence, and unfair competition in the complaint filed against them by plaintiff Kyle Fjelstad (plaintiff). They argue the court erred in finding they could not enforce an arbitration provision. Although they were not parties to the agreement containing the arbitration provision, they were agents of a party to the agreement. They further contend equitable estoppel requires plaintiff to arbitrate. Finally, they assert plaintiff's claim is within the scope of the arbitration provision.
We conclude defendants may compel arbitration as agents of a party to the agreement containing an arbitration provision. We further hold the claims alleged are arbitrable under that arbitration provision. Consequently, we reverse and remand to the superior court to enter an order granting defendants' motion to compel arbitration.
FACTS AND PROCEDURAL HISTORY
In 2014 plaintiff and Connected Holdings (Connected; not a party to this action) formed Theft Patrol, LLC (Company), a Tennessee limited liability company. Company sells GPS (global positioning system) tracking devices for vehicles and provides related services. Plaintiff owned about 23 percent of the interest with Connected holding the balance.
Plaintiff and Connected entered into an Operating Agreement (Agreement) for Company. The Agreement defined "Initial Parties" as Connected and plaintiff. Plaintiff and defendants were the directors of Company. Defendants were also directors, officers, and members of Connected.
The Agreement gave the directors authority to manage Company and required them to "use reasonable business judgment" in carrying out their duties. Boling was Connected's "Designated Person" with power to act on its behalf; he signed the Agreement for Connected. The Agreement authorized Company and its officers, directors, and members to rely on Boling's acts or omissions as the acts or omissions of Connected. Plaintiff served as Company's president, Boling as its tax matter partner, and Cheney as secretary.
The Agreement contained an arbitration provision, which stated that, except for valuation disputes "in the event of any dispute of any kind or nature in any way related to or in connection with the Company, ownership therein or the Company's business, including without limit any dispute or controversy (i) under this Agreement, (ii) related to the interpretation of this Agreement, the Articles or any other Company related document, agreement or instrument, (iii) in connection with or related to the Company's business, or (iv) in connection with or related to the relationship between Directors, Officers or Members as Directors, Officers or Members of the Company, the parties hereto agree to mediate and, if necessary, arbitrate all matters of every kind and nature."
The Agreement further provided: "No other person shall have standing to require satisfaction of any provision contained herein. No other person shall, under any circumstances, be deemed to be a beneficiary of this Agreement, any or all of the provisions of which may be freely waived in whole or in part by any Member at any time if, in their sole discretion, they deems it advisable to do so."
In 2016 defendants called a "joint special meeting of the directors and members" (capitalization omitted) of Company. Plaintiff and defendants, being all of the directors and members, were present, with Boling appearing individually and on behalf of Connected. At the meeting defendants approved a motion to dissolve and terminate Company; plaintiff opposed the motion.
Thereafter plaintiff filed this action against defendants for breach of duty under the Tennessee limited liability company act, California common law breach of fiduciary duty, negligence, and unfair competition under Business and Professions Code section 17200 et seq. Plaintiff alleged that after Company was dissolved its assets and liabilities were transferred to Connected, which, on information and belief, continued to do business with Company's former customers. Plaintiff further alleged defendants breached their statutory and common law duties to him by conspiring to transfer Company's assets to Connected for their personal benefit and failing to act in good faith or with ordinary care, all to plaintiff's detriment.
Defendants filed a motion to compel arbitration, asserting they had standing to enforce the Agreement because as agents of Connected, a party to the Agreement, they themselves were parties to the Agreement; and assuming they were not parties, plaintiff was equitably estopped from refusing to arbitrate because his claims relied on or were inextricably tied to obligations under the Agreement. In opposition, plaintiff argued the arbitration provision was limited to parties to the Agreement, which did not include defendants, and the claims in the complaint were not dependent on the Agreement, thus negating any reliance on equitable estoppel.
The court denied the motion. It ruled defendants were not parties to the Agreement, and they had no standing to enforce it. The court found defendants were not sued as agents of Connected but only in their individual capacities as Company directors. There was no equitable estoppel because the allegations against defendants did not arise from the Agreement but from defendants' alleged self-dealing as Company directors in violation of Tennessee and California law, independent of the Agreement. Plaintiff was not seeking to enforce the Agreement and his claims were "fully viable" without reference to the Agreement.
DISCUSSION
1. Standard of Review
On appeal from an order denying a motion to compel arbitration, "'"[i]f the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed."' [Citation.] In the absence of conflicting extrinsic evidence, '"[w]hether and to what extent [nonsignatories] can also enforce the arbitration clause is a question of law, which we review de novo."' [Citation.]" (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 300.) 2. Agency
"The general rule is that only a party to an arbitration agreement may enforce it." (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 837.) But "[n]onsignatory defendants may enforce arbitration agreements 'where there is sufficient identity of parties.' [Citation.] Enforcement is permitted where the nonsignatory is the agent for a party to the arbitration agreement [citations]." (Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, 1417.)
Defendants are agents of Connected because they are officers and directors of Connected. (Corp. Code, § 208.) Defendants argue that because Connected is a party to the Agreement, they are entitled to enforce the arbitration provision as agents of Connected. They claim plaintiff sued them "in their dual role" as agents of both Connected and Company and contend it is "clear" their agency relationship to Connected is the "key" to complaint.
Plaintiff disputes this claim asserting he did not sue for breach of the Agreement nor did he sue defendants as agents of Connected. He maintains that when defendants committed the alleged wrongful acts they acted solely as directors and officers of Company, not in their capacity as officers and directors of Connected.
It is true the complaint alleged defendants "transfer[red] the value of [Company] to Connected, for [d]efendants' personal gain." But the complaint also alleged "Connected continues to service all of [Company's] customers, and is receiving substantial revenue from such customers."
So while the complaint did not specifically allege defendants were acting as agents of Connected, a fair reading of the complaint shows they were sued, at least in part, as agents of Connected. As a result defendants may enforce the arbitration provision. (Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418 ["If, as the complaint alleges, the individual defendants, though not signatories, were acting as agents for the [defendants], then they are entitled to the benefit of the arbitration provisions"].) The court erred in concluding otherwise.
Plaintiff relies on the provision in the Agreement denying standing to nonparties and explicitly excluding any claim of third party beneficiary status. This does not apply to defendants as agents of Connected, because agents are neither nonparties nor third party beneficiaries. (See RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1520 [court distinguished between agent and third party beneficiary].) We also reject plaintiff's reliance on the provision in the Agreement that states a member may, at his discretion, waive any portion of the Agreement, including the arbitration provision. While this allows plaintiff to waive parts of the Agreement on his own behalf, he cannot do so on behalf of defendants. (RSL Funding, LLC v. Alford (2015) 239 Cal.App.4th 741, 747 ["Waiver is the 'intentional relinquishment of a known right'"].)
Because the court ruled defendants had no standing to enforce the arbitration provision, it did not decide whether defendants' alleged acts were arbitrable. This is a necessary prerequisite to enforcing an arbitration provision. (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1244 ["Only disputes that fall within the scope of an arbitration provision are arbitrable"].) Where, as here, the language of an arbitration provision is not in dispute, arbitrability is a question of law, which we determine de novo. (Brinkley v. Monterey Financial Services, Inc. (2015) 242 Cal.App.4th 314, 325.)
The arbitration provision required the parties to arbitrate "any dispute of any kind or nature in any way related to or in connection with the Company, ownership therein or the Company's business" including disputes "related to the Company's business" or "related to the relationship between Directors, Officers or Members as Directors, Officers or Members of the Company." The wrongful acts defendants allegedly committed, breaching their fiduciary duties to plaintiff by conspiring to transfer Company's assets to Connected and failing to act in good faith or with ordinary care, all relate to Company's business and impinge on the relationship among the parties as directors, officers, and members of Company, including Connected. These alleged wrongful acts fall within the scope of the arbitration provision and as a matter of law support an order compelling plaintiff to arbitrate his claims. At oral argument plaintiff conceded the claims were within the scope of the arbitration provision.
Because we decide defendants may enforce the arbitration provision as agents of Connected, we need not discuss the alternate ground on which the court ruled, that plaintiff was not equitably estopped to deny enforcement.
DISPOSITION
The order is reversed and the case is remanded to the superior court with directions for the court to enter a new order granting the motion to compel arbitration. Defendants are entitled to costs on appeal.
THOMPSON, J. WE CONCUR: O'LEARY, P. J. ARONSON, J.