Opinion
B328659
08-13-2024
BETSY MERRITT, Plaintiff and Respondent, v. JOHN D. CARTWRIGHT et al., Defendants and Appellants.
O'Hagan Meyer, Samuel Y. Edgerton III and Johnny L. Antwiler for Defendants and Appellants. Law Offices of Steve A. Buchwalter and Steve Buchwalter for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEALS from a judgment and an order of the Superior Court of Los Angeles County, No. BC661823 Gail Killefer, Judge. Reversed and remanded with directions.
O'Hagan Meyer, Samuel Y. Edgerton III and Johnny L. Antwiler for Defendants and Appellants.
Law Offices of Steve A. Buchwalter and Steve Buchwalter for Plaintiff and Respondent.
FEUER, J.
John D. Cartwright and Janice Gibson Cartwright appeal from a judgment confirming an arbitration award for $512,500 in favor of Betsy Merritt following a Financial Industry Regulatory Authority (FINRA) arbitration. In the arbitration, Merritt and Joseph Singleton brought multiple claims against the Cartwrights, including for tortious interference with contract, in connection with the proposed sale of Merritt's financial advisory practice to Singleton.
Merritt and Singleton also asserted a claim in the arbitration for breach of contract against Cetera Advisor Networks LLC (Cetera). Before the arbitration hearing commenced, Merritt, Singleton, and Cetera reached a settlement agreement that required Cetera to pay Merritt and Singleton $375,000 and further provided that the payment would be an offset to any liability the Cartwrights had to Merritt and Singleton pursuant to an arbitration award. The Cartwrights and Merritt disputed whether the arbitration award accounted for the offset, and the Cartwrights moved to compel arbitration of the dispute over the offset provision. The trial court denied the motion, and the Cartwrights also appeal that order.
On appeal, the Cartwrights contend the trial court erred in entering judgment on the full $512,500 amount because the amount did not include an offset for the $375,000 payment by Cetera. They further argue the court erred in denying their motion to compel arbitration because the parties' dispute over the offset provision in the settlement agreement was subject to FINRA arbitration. Substantial evidence did not support the court's finding that the arbitrators applied the offset in making the arbitration award. However, the court did not err in confirming the arbitration award and entering judgment for $512,500 in favor of Merritt as the amount the arbitration panel awarded Merritt on her claim against the Cartwrights without taking into account the offset. But we agree with the Cartwrights that, under the settlement agreement, their dispute with Merritt over how the offset should be applied, and in what amount, must be resolved by arbitration under the settlement agreement. We therefore affirm the order confirming the arbitration award and the judgment but reverse the order denying the Cartwrights' motion to compel arbitration. On remand, the trial court shall vacate its order denying the motion to compel arbitration and enter a new order requiring the parties to arbitrate the offset dispute.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Complaint and the Cartwrights' Successful Motion To Compel Arbitration
On November 16, 2016 Merritt and Singleton filed a complaint against the Cartwrights, alleging causes of action for interference with contract and interference with prospective economic advantage. The complaint alleged Merritt and Singleton entered into a contract to sell Merritt's financial advisory practice to Singleton. The Cartwrights were co-regional directors of Cetera, and they oversaw Merritt's and Singleton's financial advisory practices. The Cartwrights allegedly used confidential information to interfere with Merritt's and Singleton's rights under their contract, secretly solicited members of Merritt's financial advisory practice to work with and join other financial advisory practices, improperly provided management level sales and payout information to those members, and leaked information concerning the suitability of Singleton's financial advisory practice.
The complaint was filed in the San Diego County Superior Court, then was transferred to the Los Angeles County Superior Court on May 18, 2017.
On June 15, 2017 the Cartwrights filed a motion to compel arbitration, which on October 12 the trial court granted pursuant to FINRA Rule 13200(a). Rule 13200 requires arbitration of "dispute[s] aris[ing] out of the business activities of a member or an associated person and is between or among" members and associated persons. The trial court stayed the case pending completion of the FINRA arbitration. The court found the parties were "'associated persons'" under FINRA; the parties were registered with Cetera, which was a FINRA member; and "the allegations of the [c]omplaint 'pertain to matters with some nexus to the activity actually regulated by FINRA' and directly relate to and arise out of the parties' business activities 'as associated persons of a FINRA member.'"
The Cartwrights styled their first and second motions to compel arbitration as petitions to compel arbitration. (See Code Civ. Proc., § 1281.2 [referring to a request to enforce an arbitration agreement as a "petition of a party to an arbitration agreement"].) However, because the petitions were filed in an existing lawsuit, we treat them as motions to compel arbitration. (See Villareal v. LAD-T, LLC (2022) 84 Cal.App.5th 446, 452, fn. 2 [treating petition to compel arbitration filed in existing action as motion to compel arbitration]; Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 772 ["There is an 'analytic distinction' between a motion (or petition) to compel arbitration filed within an existing action, as here, and a petition to compel arbitration that commences an independent action."].)
"FINRA is the self-regulatory organization for securities brokers and brokerage firms and is the successor to the National Association of Securities Dealers, Inc. (NASD). [Citation.] FINRA is responsible for regulatory oversight of all securities brokers and firms that do business with the public; professional training, testing, and licensing of persons registered by FINRA; and arbitration and mediation of disputes." (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 834, fn. 1.)
B. The Arbitration and Settlement Agreement with Cetera
On May 11, 2018 Merritt and Singleton filed claims in the FINRA arbitration against the Cartwrights for tortious interference with contract, fraud, negligence, breach of fiduciary duty, and violation of Business and Professions Code section 17200. Merritt and Singleton also asserted a claim against Cetera for breach of contract. Merritt sought $2,101,124 and Singleton sought $8,670,780 in compensatory damages. They also requested interest from the proposed sale date, attorneys' fees and costs of suit in accordance with the parties' independent contractor agreements, and punitive damages.
On November 3, 2022 Merritt and Singleton settled their claim against Cetera. Under paragraph 2 of the settlement agreement, Cetera agreed to pay $375,000 to Merritt and Singleton "[w]ithin thirty days of receipt of [the] Settlement Agreement and General Release signed by" Merritt and Singleton. Paragraph 5 provided, "Exclusion from Settlement Agreement and Release. Notwithstanding anything in this Agreement to the contrary, Claimants [Merritt and Singleton] expressly do not release their claims against the Cartwrights in the Action. However, any settlement payment made pursuant to Paragraph '2' of this Agreement shall be treated as an offset of any liability that the Cartwrights may have to Claimants pursuant to any Arbitration Award that may issue after a hearing on the merits in the Action."
Paragraph 20 of the settlement agreement specified, "Choice of Law and Forum Selection. The laws of the State of California, without giving effect to its conflict of law provisions, shall govern any dispute, claim, action, or proceeding relating to or arising out of this Agreement. Disputes, if any, shall be resolved by FINRA Dispute Resolution." The parties agreed to keep the terms of the settlement agreement confidential, "except that a Party may make such a disclosure: (1) if required to do so by Court order, (2) if required to do so by any governmental or regulatory authority, (3) to enable Claimants or other individuals, as necessary, to prepare their tax returns or related documents, (4) to enable a Party to pursue an action, if necessary, to enforce the terms of the Agreement, or (5) as needed to enable the Cartwrights to enforce the offset provision provided for in Paragraph '5.'"
After dismissing Cetera pursuant to the settlement agreement, Merritt and Singleton proceeded to arbitrate their claims against the Cartwrights. On January 9, 2023 a three-member arbitration panel issued an arbitration award in favor of Merritt. The arbitration award stated in part, "After considering the pleadings, the testimony and evidence presented at the hearing, and any post-hearing submissions, the Panel has decided in full and final resolution of the issues submitted for determination as follows: [¶] 1. Claimant Singleton's claims are denied in their entirety. [¶] 2. The Cartwrights are jointly and severally liable for and shall pay to Claimant Merritt the sum of $512,500.00 in compensatory damages. [¶] 3. Any and all claims for relief not specifically addressed herein, including any requests for punitive damages and attorneys' fees, are denied." Under the heading "other issues considered and decided," the arbitration award stated, "The Arbitrators acknowledge that they have each read the pleadings and other materials filed by the parties." (Boldface and capitalization omitted.) Further, the arbitration award noted Merritt and Singleton had "filed a notice of voluntary dismissal with prejudice of all claims asserted against Cetera," and thus, the arbitrators "made no determination to any of the relief requests contained in the [s]tatement of [c]laim against Cetera."
The three arbitrators were Benjamin F. Breslauer (presiding chairperson), Eric Beatty, and Thomas Mason Harwood.
C. Merritt's Petition To Confirm the Arbitration Award
On January 20, 2023 Merritt filed a petition to confirm the arbitration award. Merritt also requested statutory interest and costs of suit according to proof. In support of her petition, Merritt attached the October 12, 2017 order granting the Cartwrights' motion to compel arbitration of Merritt's and Singleton's causes of action and the arbitration award.
On February 7, 2023 the Cartwrights sent a check by overnight mail for $137,500 ($512,500 less the $375,000 offset) to Merritt's attorney, taking the position that after the offset, this covered the full amount of the Cartwrights' liability.
In their opposition to the petition to confirm, the Cartwrights stated they "d[id] not oppose the arbitration award." However, they objected to Merritt's "attempt to obtain a judgment for the entire amount of the arbitration award in violation of the terms of the settlement agreement entered into by [Merritt] which reduced the requested judgment at issue by the amount of the settlement reached by" Cetera. The Cartwrights also objected to Merritt's request for costs of suit and statutory interest from the date of the arbitration award.
In support of their opposition, the Cartwrights filed conditionally under seal the declaration of Cetera's attorney, Christina Vourakis. Vourakis declared that Cetera "made a settlement payment of $375,000 pursuant to Paragraph 2 of the Settlement Agreement." She further stated, "In connection with the parties' negotiation and drafting of the Settlement Agreement, I expressly discussed the setoff provision with [Merritt and Singleton's] counsel prior to its execution. This was not a setoff to be considered and decided by the arbitration panel in the award, but this was an offset to any final award issued by the arbitration panel. These discussions were also memorialized in email correspondence with [Merritt and Singleton's] counsel, stating in relevant part that 'the $375,000 will be treated as an offset to any arbitration award against the Cartwrights.'"
Vourakis's declaration was extensively redacted, and the two attached exhibits were fully redacted. On December 21, 2023 we granted the Cartwrights' motion to augment the record on appeal with the unredacted Vourakis declaration and the attached exhibits.
Vourakis attached two exhibits to her declaration: Cetera's settlement agreement with Merritt and Singleton and Vourakis's email correspondence with Steve Buchwalter, the attorney for Merritt and Singleton. On November 1, 2022 Vourakis wrote in an email to Buchwalter, "[T]he $375,000 will be treated as an offset to any arbitration award against the Cartwrights, so I removed the language in your proposed recital footnote because that runs contrary to the concept." Buchwalter replied, "I did change the wording in FN 1 so that the Cartwrights can claim an offset and my clients aren't dismissing members of the Cartwright family in the event we get an award that isn't paid."
In reply, Merritt argued she submitted the offset issue to the arbitrators because paragraph 3 of the settlement agreement excluded from the agreement any future claims to enforce the arbitration award. Merritt asserted, "The setoff issue was submitted to the arbitrators and the arbitrators issued an award based on it. The arbitrators already applied the offset and the final award already reflects it." She further argued the Cartwrights failed to meet their burden to establish an invalid arbitration award; the Cartwrights did not have standing to enforce the settlement agreement; Merritt was seeking court costs and not arbitration costs; and Merritt was entitled to interest under Civil Code sections 3287 and 3289 because the Cartwrights had not paid the full arbitration award amount.
Paragraph 3 of the settlement agreement provided in part, "With the exception of certain claims solely against [the Cartwrights], as set forth in Paragraph '5' below, the Releasors expressly acknowledge that they are releasing the Releasees not only from, among other things, the claims asserted in the Action, but also as to any business relationship or transaction in connection with the Releasees, it being the Parties' intent that this release constitutes a complete and general release of the Releasees. Notwithstanding the foregoing, moreover, future claims relating to enforcement of an arbitration award in connection with the Action, including collections and/or fraudulent transfer actions, are expressly excluded from this agreement and release." (Italics added.)
Buchwalter submitted a declaration in which he acknowledged he "engaged in settlement discussions with Cetera, through" Vourakis. Buchwalter declared, "The settlement provided for an offset for whatever liability the Cartwrights had to [Merritt and Singleton]. During the settlement negotiations, there were no discussions whatsoever as to whom was to apply the offset, the arbitrators or the courts. Since any settlement from a joint tortfeas[o]r would lower the damages [Merritt and Singleton] had to a remaining tortfeasor, it seemed to me that the only viable option was to have the arbitrators decide."
According to Buchwalter, Merritt and Singleton "submitted the issue of the offset to the arbitrators." Buchwalter averred, "During the arbitration hearing, [the Cartwrights'] counsel, Sam Edgerton, asked me in front of the arbitrators what Cetera paid to settle Cetera's portion of the case. I informed him of the settlement amount and also said that the settlement provides for an offset for his clients. [¶] Mr. Edgerton called Cetera's President, Tom Taylor as a witness. Mr. Edgerton questioned Mr. Taylor about the settlement. [¶] There were numerous instances when Mr. Edgerton discussed the settlement on the record at the arbitration hearing, including during his closing. [¶] There [were] also two instances where the arbitrators asked about the terms of the settlement and how to allocate the offset. One was on the record, and the other was not. [¶] . . . [¶] The day before closings started, the parties took their last break for the day. Upon our return, and before we went on the record, Mr. Breslauer, on behalf of all three arbitrators asked about the terms of the Cetera settlement. I gave everyone a copy of the settlement agreement and responded to his question stating the amount of the settlement. Mr. Breslauer then asked me, if there were to be an award in . . . [Merritt and Singleton's favor], how should they allocate the settlement funds between [Merritt's and Singleton's] damage claims. I responded that the allocation should be 50-50."
Merritt also submitted a supporting declaration from Brian Lowe, who attended the arbitration as a paralegal for Buchwalter. Lowe confirmed panel chairperson Breslauer asked about the terms of the settlement agreement and "Buchwalter gave everyone a copy of the settlement agreement." Lowe stated he went through 45 audio tapes of the arbitration hearing and "searched the tapes for references to the settlement agreement and offset." He transcribed "the exact words on the tapes" and "added the identity of the speaker." Lowe's transcription of the arbitration hearing showed that the Cartwrights' attorney (Edgerton) asked Buchwalter about the settlement amount, and Buchwalter responded, "'375.'" An unidentified arbitrator asked, "'I'm sorry. You said 375.'" Buchwalter responded, "'Yes.'" The arbitrator then asked, "'Is there an allocation between the two claims?'" Buchwalter answered, "'No.'" During questioning of Taylor (Cetera's president), Breslauer asked, "'Cetera was a party to this case, until they were dismissed as a result of the settlement agreement. Could you describe for the panel the terms of the settlement agreement?'" Taylor responded, "'I'm not-I don't know the terms, if you're asking me.'" At some point during the arbitration, Edgerton stated, "'You know there was a Cetera settlement in this case already for 375,000. Why they settled? I don't know. We have no idea because they were separately representing themselves and I've always represented the Cartwrights; in the very beginning we were just separate.'" The two-page transcription does not include the word "offset," or contain any reference to an offset (or setoff) to the arbitration award.
The Cartwrights did not assert a hearsay objection to Lowe's transcription, nor do they argue on appeal that it is inaccurate.
D. The Trial Court's Ruling on the Petition To Confirm
On March 2, 2023 the trial court granted Merritt's petition to confirm the arbitration award. The court explained, "Defendants here carry the burden of invalidating the Award, or contesting the Award pursuant to [Code of Civil Procedure section] 1286.2 et seq. Defendants fail to provide sufficient evidence to meet any of the criteria to contest the Award, and further concede the Award but only attempt to contest the setoff provision. The court finds Defendants have failed to show that the setoff provision was not considered by the Arbitrators, or how an enforcement of the setoff provision would not amount to a correction of the Award which would require a showing of one of the criteria needed. Lastly, the court also agrees with [Merritt] that Defendants have failed to show here that the costs of the suit are not recoverable, or that payment within 30 days has been made to not justify the imposition of interest."
E. The Cartwrights' Motion To Compel Arbitration
On March 24, 2023 the Cartwrights filed a motion to compel arbitration to enforce the settlement agreement and to stay entry of judgment. The Cartwrights asserted they were entitled to subtract Cetera's settlement payment from the arbitration award amount pursuant to the offset provision in paragraph 5 of the settlement agreement. The Cartwrights argued, "The arbitration panel was never informed of the offset provision at issue in the dispute. The arbitration panel was merely provided a copy of the Settlement Agreement on either the last day or the second to last day of the hearing. The arbitration panel asked how the [proceeds] of the Settlement Agreement were split between Plaintiff Betsy Merritt and Joseph Singleton. However, there was no mention of any offset provision. Further, there was no mention anywhere in the Arbitration Award that the award was lowered or offset by the Settlement Agreement. Therefore, there is no evidence that the arbitration panel considered or applied the offset provision."
The Cartwrights maintained, "Any dispute as to the meaning of the offset provision and when it should have been applied is clearly a dispute which must be submitted to an arbitration in front of FINRA." The Cartwrights relied on paragraph 20 of the settlement agreement, which provided that "[d]isputes, if any, shall be resolved by FINRA Dispute Resolution." They argued they had standing to enforce the arbitration provision as intended third party beneficiaries under the settlement agreement.
In her opposition, Merritt argued, "[S]ince the arbitrators were given a copy of the settlement agreement at the hearing, asked the parties how the settlement payments were allocated to the Plaintiffs, and heard testimony about the settlement from all parties, they considered it in their award, and granting the instant petition would be tantamount to revisiting the award and forcing a reconsideration of the arbitrators' decision, which has already been confirmed by this court." Merritt asserted the motion to compel arbitration was a disguised motion for reconsideration under Code of Civil Procedure section 1008, subdivision (a), and the Cartwrights failed to present any grounds for reconsideration. Merritt also argued the arbitration clause did "not make arbitration the sole or only remedy." Although paragraph 20 of the settlement agreement references FINRA dispute resolution, Merritt maintained, it "contemplates actions in court, but does not even mention arbitration or arbitrators." She added, "To the extent Merritt agreed to arbitrate any disputes about a setoff, she already did that." Finally, Merritt argued the motion to compel arbitration was barred by claim or issue preclusion because the motion sought to re-arbitrate the dispute between the parties.
Further undesignated statutory references are to the Code of Civil Procedure.
In her supporting declaration, Merritt stated she saw Buchwalter provide copies of the settlement agreement to the arbitrators and Edgerton one or two days before closing arguments. Merritt declared, "I was aware that if there was a dispute as to the settlement agreement, the Agreement said that it was to be decided by FINRA Dispute Resolution. It was my understanding that by submitting it to the arbitrators in our then current arbitration, [it] would satisfy my obligations under the Agreement. [¶] It was my intention and belief that I would only need to arbitrate the setoff provision in the Agreement once, which I did." Merritt added, "I never agreed to and could not have anticipated giving a second set of arbitrators the authority to veto, change, act as an appellate court, or in any way second guess the arbitration award that resulted from the arbitration that we did have."
On April 11, 2023 the Cartwrights filed an ex parte application for an order shortening time on their motion to compel arbitration and advancing the hearing date. The trial court granted the application, stating in the minute order, "Pursuant to the request of defendant[s], the Hearing on Motion to Compel Arbitration scheduled for 07/17/2023 is advanced to this date and heard. [¶] The Motion to Compel Arbitration . . . is Denied." The court did not state any reason for its summary denial of the motion to compel arbitration. The Cartwrights did not file a reply brief before the court issued its ruling.
F. The Judgment
On April 26, 2023 the trial court entered judgment in favor of Merritt "in conformity with the Arbitrators' Award issued in the FINRA Arbitration award." The judgment stated that the Cartwrights were jointly and severally liable to Merritt for $512,500 plus "prejudgment interest from January 9, 2023 (the date of the award)."
The Cartwrights timely appealed.
On April 24, 2023 the Cartwrights filed a notice of appeal from the order denying their motion to compel arbitration. On May 15, 2023 they filed a notice of appeal from the judgment.
DISCUSSION
A. The Trial Court Did Not Err in Confirming the Arbitration Award and Entering the Judgment, but Substantial Evidence Does Not Support the Court's Finding the Arbitrators Applied an Offset
1. Governing law on confirmation of arbitration awards and standard of review
Section 1285.4 prescribes the requirements for a petition to confirm an arbitration award. "A petition to confirm need only set forth (1) the names of the arbitrators, (2) the arbitration agreement (by description or attached copy), and (3) the award and written opinion of the arbitrators (by description or attached copy)." (Eternity Investments, Inc. v. Brown (2007) 151 Cal.App.4th 739, 745; see § 1285.4.) "If a petition . . . is duly served and filed, the court shall confirm the award as made, unless in accordance with this chapter it corrects the award and confirms it as corrected, vacates the award or dismisses the proceedings." (§ 1286; see Kirk v. Ratner (2022) 74 Cal.App.5th 1052, 1059.)
Under section 1286.6, a trial court "shall correct the award and confirm it if the court determines that: [¶] (a) [t]here was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; [¶] (b) [t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or [¶] (c) [t]he award is imperfect in a matter of form, not affecting the merits of the controversy."
Under the California Arbitration Act (§ 1280 et seq.), "both the superior court and the appellate court must give every intendment of validity to an award, and the burden is on the party claiming invalidity to support such claim with evidence." (National Marble Co. v. Bricklayers &Allied Craftsmen (1986) 184 Cal.App.3d 1057, 1066; accord, Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 526.) "'"'On appeal from an order confirming an arbitration award, we review the trial court's order (not the arbitration award) under a de novo standard. [Citations.] To the extent that the trial court's ruling rests upon a determination of disputed factual issues, we apply the substantial evidence test to those issues.'"'" (Roussos v. Roussos (2021) 60 Cal.App.5th 962, 973; accord, Brawerman v. Loeb &Loeb LLP (2022) 81 Cal.App.5th 1106, 1115; see Haworth v. Superior Court (2010) 50 Cal.4th 372, 383 [reviewing de novo whether trial court properly vacated arbitration award based on arbitrator's failure to disclose certain circumstances].)
2. Substantial evidence did not support the trial court's finding the arbitration award included the offset
The Cartwrights contend the trial court erred in placing the burden on them to show that the offset was not considered by the arbitrators and requiring them to meet the standard for correction of the arbitration award. We agree the Cartwrights did not have the burden of proof because they did not challenge the validity of the arbitration award. Nor did they seek to correct the award. Rather, they argued the judgment should have reflected Cetera's settlement payment as an offset to the arbitration award amount. Substantial evidence did not support the trial court's finding that the arbitrators considered and applied the offset in determining the arbitration award.
"Section 1283.4 defines an arbitrator's 'award' as a written ruling that 'include[s] a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.'" (Kirk v. Ratner, supra, 74 Cal.App.5th at p. 1059.) "This statutory definition necessarily looks to the particulars of the arbitration at issue: The parties who have contractually agreed to arbitrate get to decide how to structure their arbitration proceeding (subject to the arbitration entity's governing rules) and, thus, which '"questions [are to be] submitted to the arbitrator[]"' [citations], and 'the arbitrator[]' gets 'to determine what issues are "necessary" to' determine the controversy under section 1283.4." (Lonky v. Patel (2020) 51 Cal.App.5th 831, 844.)
The arbitration award listed Merritt and Singleton's causes of action asserted against the Cartwrights; the relief Merritt and Singleton requested; and the Cartwrights' request for relief (that Merritt and Singleton "take nothing" from their claims). Under the heading "other issues considered and decided" (capitalization and underlining omitted), the award made clear that, in light of the voluntary dismissal with prejudice of all claims against Cetera, the panel "made no determination to any of the relief requests contained in the Statement of Claim against Cetera." The arbitration award provided that the panel "has decided in full and final resolutions of the issues submitted for determination" that "[t]he Cartwrights are jointly and severally liable for and shall pay to Claimant Merritt the sum of $512,500.00 in compensatory damages." (Italics added.) Nowhere in the arbitration award does it state that the Cartwrights asserted a claim for an offset to their liability or that the parties submitted the offset issue to the arbitrators for adjudication. Moreover, the award does not mention the settlement agreement between Cetera and Merritt and Singleton or any offset under the agreement.
Merritt contends substantial evidence supported the trial court's finding the arbitrators applied the offset because Buchwalter provided the settlement agreement to the arbitrators at the hearing (which is undisputed), and the arbitration award acknowledged that the arbitrators "each read the pleadings and other materials filed by the parties," and that, after considering the pleadings and "testimony and evidence presented at the hearing," they issued their final award. But, as discussed, the offset was not listed as an issue to be decided in the arbitration, and the award is silent as to the offset issue.
The Buchwalter and Lowe declarations filed in support of Merritt's petition to confirm likewise do not support a finding that the arbitration award included the offset. Lowe attended the arbitration and later searched through 45 audio tapes of the arbitration hearing "for references to the settlement agreement and offset." He transcribed "the exact words on the tapes" and "added the identity of the speaker." Lowe's two-page transcription shows the attorneys and the arbitrators discussed the settlement agreement amount (the $375,000), but the recordings do not contain any reference to an offset. Buchwalter in his declaration stated that in the presence of the arbitrators he informed Edgerton "that the settlement provide[d] for an offset for" the Cartwrights. But Lowe's transcription of the arbitration hearing does not support this statement. Moreover, Buchwalter stated the settlement was discussed "numerous instances," including in the examination of Cetera's president (Taylor) and Edgerton's closing argument. But Lowe's transcription reflects that when asked about the settlement, Taylor responded that he did not know the terms, and Lowe's transcription does not show any discussion of the settlement in the closing arguments (or any other discussion other than the dollar amount).
Given that the offset was not listed as an issue to be decided, the arbitration award made no mention of the settlement agreement or the offset provision, the offset was not discussed during the hearing, and the award expressly made no determination as to the relief requested against Cetera following Merritt and Singleton's voluntary dismissal of Cetera, there is not substantial evidence the arbitrators applied the offset provision and reduced the compensatory damages awarded to Merritt in the arbitration award by $375,000. (See Wade v. Schrader (2008) 168 Cal.App.4th 1039, 1047 (Wade) ["Since there was never any dispute concerning the fact or the amount of the settlement credit, it was not a claim or right requiring adjudication. Therefore, [defendants] were not remiss in failing to ask the arbitrator to rule upon it. And, since [the defendants] did not ask the arbitrator to rule on the point, it follows that the arbitrator's award would not have taken the credit into account."].)
Merritt also argues that the parties to the settlement agreement intended that the offset amount be applied by the arbitrators. But the settlement agreement-executed by Merritt, Singleton, and Cetera-does not authorize the arbitrators in the arbitration between Merritt and the Cartwrights to determine application of the offset. Paragraph 5 of the settlement agreement provided only that "any settlement payment . . . shall be treated as an offset of any liability that the Cartwrights may have to Claimants pursuant to any Arbitration Award that may issue after a hearing on the merits in the Action." Vourakis (Cetera's attorney) stated in her declaration that she "expressly discussed the setoff provision" with Buchwalter, and Cetera's settlement payment "was not a setoff to be considered and decided by the arbitration panel in the award." And Vourakis wrote in her November 1, 2022 email to Buchwalter (attaching a revised settlement agreement), "[T]he $375,000 will be treated as an offset to any arbitration award against the Cartwrights, so I removed the language in your proposed recital footnote because that runs contrary to the concept." Buchwalter did not reject Vourakis's interpretation of the offset provision, instead responding, "I did change the wording in FN 1 so that the Cartwrights can claim an offset and my clients aren't dismissing members of the Cartwright family in the event we get an award that isn't paid."
Although we conclude substantial evidence does not support the trial court's finding that the arbitrators applied the offset in making the arbitration award, that does not mean the court erred in confirming the arbitration award and entering judgment. The judgment correctly reflects the arbitration panel's determination of the Cartwrights' liability to Merritt, without addressing the offset. As we discuss below, the dispute over how to apply the offset under the settlement agreement must be addressed in a second arbitration under the settlement agreement. Once that dispute is resolved, the offset may be applied, as the Court of Appeal explained in Wade, supra, 168 Cal.App.4th at pages 1048 to 1049, as part of the process for enforcement of the judgment, for example, by a motion to compel acknowledgment of satisfaction of judgment or partial satisfaction of judgment. (See §§ 724.050, subd. (d) ["If the judgment creditor does not comply with [a judgment debtor's demand for satisfaction of judgment] within the time allowed, the person making the demand may apply to the court on noticed motion for an order requiring the judgment creditor to comply with the demand."]; 724.110, subd. (b) [providing for judgment debtor to file noticed motion for acknowledgment of partial satisfaction of judgment].)
In Wade, the chief executive officer of a company (Wade) sued the directors and majority shareholders (the Schraders) and the minority shareholders for breach of fiduciary duty and conversion after they fired him and revoked his stock. (Wade, supra, 168 Cal.App.4th at p. 1042.) Wade settled with the minority shareholders, and the trial court determined the settlements were made in good faith under sections 877 and 877.6. (Wade, at p. 1042.) Wade's claims against the Schraders were resolved by arbitration pursuant to the parties' agreement. (Id. at pp. 1042-1043.) After the trial court confirmed the arbitration award and entered judgment, the Schraders moved to compel acknowledgment of satisfaction of the judgment because the award was less than the total amount Wade received from the good faith settlements with the minority shareholders. (Id. at p. 1043.)
The superior court granted the Schraders' motion, applying the settlement credit in partial satisfaction of the judgment (in light of a costs award). (Wade, supra, 168 Cal.App.4th at pp. 1043-1044.) The Court of Appeal affirmed, explaining, "Once an arbitration award obtained in the course of contractual arbitration has been reduced to judgment, the judgment 'has the same force and effect as, and is subject to all the provisions of law relating to, a judgment in a civil action of the same jurisdictional classification; and it may be enforced like any other judgment of the court in which it is entered, in an action of the same jurisdictional classification.' (§ 1287.4.) Nothing in the contractual arbitration statutes prevents the superior court from making a ruling pertaining to the enforcement of the judgment entered upon the arbitration award." (Id. at pp. 1045-1046.) The court rejected Wade's contentions "that the arbitrator took the settlement credit into consideration when he made the award" and that the Schraders' failure to submit the settlement credit issue to the arbitrator precluded relief in the trial court. (Id. at pp. 1046-1047.) The court concluded, "The procedure the Schraders used to offset their liability to Wade-a motion to compel acknowledgment of satisfaction of a judgment (§ 724.050, subd. (d))-is an entirely acceptable procedure for balancing offsetting judgments." (Id. at p. 1048.)
As in Wade, the Cartwrights have remedies to obtain an offset against the judgment once a determination of the amount of the offset is made in a second arbitration. (Wade, supra, 168 Cal.App.4th at p. 1048; see Harrison v. Adams (1942) 20 Cal.2d 646, 649 ["[A] judgment debtor who has . . . become the owner of a judgment or claim against his judgment creditor, may go into the court in which the judgment against him was rendered and have his judgment offset against the first judgment."]; Jhaveri v. Teitelbaum (2009) 176 Cal.App.4th 740, 752 ["An order under section 724.110 directing a plaintiff to execute and deliver a partial satisfaction of judgment is the appropriate means by which a codebtor on a judgment may be credited with money received by the plaintiff in offset against the judgment."].)
B. The Trial Court Erred in Denying the Cartwrights' Motion To Compel Arbitration
1. Governing law on motions to compel arbitration and standard of review
Section 1281.2 requires the trial court to order arbitration of a controversy "[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy . . . if it determines that an agreement to arbitrate the controversy exists." Accordingly, the threshold question is whether there is an agreement to arbitrate. (American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. 228, 233 ["arbitration is a matter of contract"]; Pinnacle Museum Tower Assn. v. Pinnacle Market Development (U.S.), LLC (2012) 55 Cal.4th 223, 236 ["'"A party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."'"]; Trinity v. Life Ins. Co. of North America (2022) 78 Cal.App.5th 1111, 1120 ["As the language of this section makes plain, the threshold question presented by every petition to compel arbitration is whether an agreement to arbitrate exists."].)
The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence an agreement to arbitrate a dispute exists, and the party opposing arbitration bears the burden of proving unconscionability or other defenses. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (U.S.) LLC, supra, 55 Cal.4th at p. 236; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) "To carry this burden of persuasion the moving party must first produce 'prima facie evidence of a written agreement to arbitrate the controversy.' [Citations.] 'If the moving party meets its initial prima facie burden and the opposing party disputes the agreement, then . . . the opposing party bears the burden of producing evidence to challenge the authenticity of the agreement.' [Citations.] If the opposing party produces such evidence, then 'the moving party must establish with admissible evidence a valid arbitration agreement between the parties.' [Citation.] Despite the shifting burden of production, '[t]he burden of proving the agreement by a preponderance of the evidence remains with the moving party.'" (Trinity v. Life Ins. Co. of North America, supra, 78 Cal.App.5th at p. 1120; accord, Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)
Merritt contends the Cartwrights cannot meet their burden to show the trial court erred in denying the motion to compel arbitration because there is no record of the court's ruling (orally or in writing). The minute order from the April 11, 2023 hearing reflects that there was no court reporter at the hearing, and there is no written ruling other than the statement in the minute order that the motion was denied. The failure of the Cartwrights to provide a reporter's transcript or settled statement showing what happened at the hearing, or to request a statement of decision, makes it harder for them to meet their burden on appeal. But it does not mean the Cartwrights cannot show error. Under California law, a trial court must prepare a statement of decision for any ruling denying a motion to compel arbitration if a party requests one. (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 970; see § 1291 ["A statement of decision shall be made by the court, if requested pursuant to [s]ection 632, whenever an order or judgment . . . is made that is appealable under this title."].) Because the Cartwrights did not request a statement of decision (and we have no record of any oral findings), they "waive[d] any objection to the trial court's failure to make all findings necessary to support its decision." (Acquire II, Ltd., at p. 970; accord, Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 996.) Further, we apply "the doctrine of implied findings and presume[] the trial court made all necessary findings supported by substantial evidence." (Acquire II, Ltd., at p. 970; accord, Gamboa v. Northeast Community Clinic, supra, 72 Cal.App.5th at p. 167 ["'Because a statement of decision was available but not requested, we apply the doctrine of implied findings and presume the court made all factual findings necessary to support its order-to the extent substantial evidence supports such findings.'"].)
We review "de novo a trial court's determination on standing to compel arbitration." (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 857; accord, M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 559; see LaBarbera v. Security National Ins. Co. (2022) 86 Cal.App.5th 1329, 1341 ["'[T]hird party beneficiary status is a matter of contract interpretation.'"].) "Where an order denying arbitration is based on an issue of fact, we review the ruling for substantial evidence." (Algo-Heyres v. Oxnard Manor LP (2023) 88 Cal.App.5th 1064, 1070; accord, Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 544 ["Where, as here, an appeal from a denial of a motion to arbitrate turns on disputed facts, we review the trial court's ruling for substantial evidence."].)
2. The Cartwrights have standing to enforce the arbitration provision as third party beneficiaries
As discussed, paragraph 20 of the settlement agreement provided that California law governed any dispute "relating to or arising out of this Agreement," and further, disputes would be "resolved by FINRA Dispute Resolution." Under FINRA Rule 13200(a) of FINRA's Code of Arbitration Procedure for Industry Disputes (Code), "a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associate person and is between or among" members or associated persons. It is undisputed that Cetera is a FINRA member, and Merritt and the Cartwrights are associated persons.
Merritt contends the settlement agreement was not properly before the trial court because Vourakis's declaration, the settlement agreement, and Vourakis's email exchange with Buchwalter were lodged conditionally under seal. Merritt argues the Cartwrights made no motion to unseal the documents, and thus, the trial court could have refused to compel arbitration because the Cartwrights failed to produce the settlement agreement. But the trial court discussed the settlement agreement terms in its order confirming the arbitration award; thus, the settlement agreement was before the court. Moreover, Merritt forfeited the issue by not objecting in the trial court. (Cabatit v. Sunnova Energy Corp. (2020) 60 Cal.App.5th 317, 322 ["If a party fails to raise an issue or theory in the trial court, we may deem consideration of that issue or theory forfeited on appeal."]; Quiles v. Parent (2018) 28 Cal.App.5th 1000, 1013 ["'Failure to raise specific challenges in the trial court forfeits the claim on appeal.'"].)
FINRA Rule 12200 likewise provides, "Parties must arbitrate a dispute under the Code if: . . . [t]he dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company."
Merritt contends the settlement agreement only requires "Dispute Resolution," which could mean mediation instead of arbitration. But she cites to no FINRA rule that requires the parties to mediate a dispute before seeking arbitration under Rule 13200(a).
Although the Cartwrights are not parties to the settlement agreement, they may enforce the agreement-including the arbitration provision-if they are third party beneficiaries to the agreement. (Cohen v. TNP 2008 Participating Notes Program, LLC, supra, 31 Cal.App.5th at p. 856 ["Third parties may enforce a contract with an arbitration provision . . . where they are intended third party beneficiaries or are assigned rights under the contract."]; Fuentes v. TMCSF, Inc. (2018) 26 Cal.App.5th 541, 552.)
The Cartwrights argue in their opening brief that they are third party beneficiaries. Merritt does not address this argument in her respondent's brief.
"A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." (Civ. Code, § 1559.) In considering third party beneficiary contract claims, the court must "carefully examine[] the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties." (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830; accord, City of Oakland v. Okland Raiders (2022) 83 Cal.App.5th 458, 472.) "All three elements must be satisfied to permit the third party action to go forward." (Goonewardene, at p. 830; accord, City of Oakland, at p. 472.)
The three Goonewardene elements are satisfied here. The offset provision in paragraph 5 of the settlement agreement made clear that any settlement payment under paragraph 2 "shall be treated as an offset of any liability that the Cartwrights may have to Claimants pursuant to any Arbitration Award." The Cartwrights clearly benefitted from the offset provision in the settlement agreement because Merritt and Cetera agreed that Cetera's settlement payment would reduce the Cartwrights' liability to Merritt.
With respect to the motivating purpose of the settlement agreement, it is clear from the language of paragraph 5- providing for an offset to the Cartwrights' liability-that the contract was intended to benefit the Cartwrights. (See LaBarbera v. Security National Ins. Co., supra, 86 Cal.App.5th at p. 1340 ["'"The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person."'"].)
Further, the Cartwrights did not have to show that Merritt intended to benefit them under the settlement agreement; rather, it was sufficient that Cetera intended to benefit the Cartwrights, and Merritt understood that intent. "'"[A]n intent to make the obligation inure to the benefit of the third party must have been clearly manifested by the contracting parties."' [Citation.] Although this means persons only incidentally or remotely benefited by the contract are not entitled to enforce it, it does not mean both of the contracting parties must intend to benefit the third party: Rather, it means the promisor . . . "must have understood that the promisee . . . had such intent. [Citations.] No specific manifestation by the promisor of an intent to benefit the third person is required."'" (Levy v. Only Cremations for Pets, Inc. (2020) 57 Cal.App.5th 203, 212; accord, Lucas v. Hamm (1961) 56 Cal.2d 583, 591 ["Insofar as intent to benefit a third person is important in determining his [or her] right to bring an action under a contract, it is sufficient that the promisor must have understood that the promisee had such intent."]; Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal.App.4th 949, 958 [exwife had "standing as a third party beneficiary to enforce the contract between" her ex-husband and defendant jeweler involving the purchase of her engagement ring because "the jeweler must have understood [ex-husband's] intent to enter the sales contract for plaintiff's benefit"].)
Finally, allowing the Cartwrights to enforce the offset provision in the arbitral forum is consistent with the objectives of the settlement agreement and the reasonable expectations of Cetera and Merritt. Paragraph 11 of the settlement agreement provided for confidentiality of the settlement agreement terms except "as needed to enable the Cartwrights to enforce the offset provision provided for in Paragraph '5.'" Because the Cartwrights are third party beneficiaries to Merritt's settlement agreement with Cetera, they have standing to compel arbitration of their dispute over the offset under the settlement agreement.
3. Merritt failed to meet her burden to show the motion to compel arbitration was barred by issue preclusion
In her opposition to the Cartwrights' motion to compel arbitration, Merritt argued the arbitrators already applied the offset, and therefore, issue preclusion barred the Cartwrights from re-arbitrating the Cartwrights' offset claim. "It is well settled that an arbitration award may provide the basis for issue preclusion." (JPV I L.P. v. Koetting (2023) 88 Cal.App.5th 172, 192; accord, Taylor v. Lockheed Martin Corp. (2003) 113 Cal.App.4th 380, 384 [issue preclusion may "extend to findings made in prior nonjudicial proceedings such as administrative hearings or arbitrations"]; Kelly v. Vons Companies, Inc. (1998) 67 Cal.App.4th 1329, 1336 [it is "appropriate to give collateral estoppel effect to findings made during an arbitration, so long as the arbitration had the elements of an adjudicatory procedure"].) "Issue preclusion . . . prevents 'relitigation of previously decided issues,' rather than causes of action as a whole. [Citation.] It applies only '(1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.'" (Samara v. Matar (2018) 5 Cal.5th 322, 327; accord, DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824-825.) "The 'party who asserts claim or issue preclusion as a bar to further litigation bears the burden of proving that the requirements of the doctrine are satisfied.'" (State Comp. Ins. Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 448; accord, Hong Sang Market, Inc. v. Peng (2018) 20 Cal.App.5th 474, 489.)
As discussed, substantial evidence did not support the trial court's finding that the arbitrators applied the Cetera settlement payment as an offset to the compensatory damages awarded to Merritt against the Cartwrights in the arbitration award. Because there was insufficient evidence the offset issue was "actually litigated and necessarily decided" in the prior arbitration, Merritt failed to show issue preclusion applied to bar the Cartwrights from arbitrating their offset claim, and the trial court erred in denying the motion to compel arbitration.
Merritt alternatively contends the Cartwrights' motion to compel arbitration was properly denied because it was a thinly veiled motion for reconsideration of Merritt's motion to confirm the arbitration award, and it did not meet the requirements of section 1008. Section 1008 "generally requires that any motion for reconsideration be based 'upon new or different facts, circumstances, or law ....'" (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1098; accord, Torres v. Design Group Facilities Solutions, Inc. (2020) 45 Cal.App.5th 239, 243.) The motion to compel arbitration sought to arbitrate the parties' dispute over the offset provision, not to reconsider the order on the petition to confirm the arbitration award (which the Cartwrights did not oppose). The Cartwrights raised the offset issue in response to Merritt's petition to confirm the arbitration award only with respect to their request that the judgment reflect the offset.
DISPOSITION
The order confirming the arbitration award and the judgment are affirmed. The order denying the motion to compel arbitration is reversed. On remand, the trial court shall vacate its order denying the motion to compel arbitration and enter a new order compelling FINFRA arbitration to determine how the offset in the settlement agreement should be applied, and in what amount. The Cartwrights are to recover their costs on appeal from Merritt.
We concur: MARTINEZ, P. J. SEGAL, J.