Opinion
No. C 13-2056 PJH
12-06-2013
SUPERIOR ENERGY SERVICES, LLC, Petitioner, v. CABINDA GULF OIL COMPANY LTD., Respondent.
ORDER DENYING FIRST AMENDED
PETITION TO COMPEL
ARBITRATION
This matter came on for hearing on December 4, 2013. Petitioner Superior Energy Services, LLC and respondent Cabinda Gulf Oil Company Limited appeared by counsel. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby DENIES the first amended petition to compel arbitration.
BACKGROUND
According to the allegations of the first amended petition for an order compelling arbitration ("Am. Pet."), filed by petitioner Superior Energy Services, LLC ("Superior Energy" or "SES"), respondent Cabinda Gulf Oil Company Limited ("CABGOC") conducts oil and gas exploration and development operations off the coast of Angola. Prior to May 2009, CABGOC contacted Superior Energy about providing CABGOC with ships, scuba diving and other equipment and personnel to support its oil and gas operations. In order to comply with Angolan law, Superior Energy associated with an Angolan company, Operatec Maquinas e Representacoes Limitada ("Operatec"), and arranged for Operatec to contract with CABGOC to provide the necessary services, and then enter a subcontract with Superior Energy to perform the actual work. Am. Pet. ¶ 5.
A. The Main Contract
On May 1, 2009, Operatec entered a contract with CABGOC for Operatec (as "CONTRACTOR") to provide scuba diving services, ships, personnel and equipment to CABGOC (as "COMPANY") for its oil and gas operations off the coast of Angola. Am. Pet. ¶ 6 and Ex. A (the "Main Contract"). The Main Contract states that its terms shall apply to any subcontractor's Work:
13. BUSINESS RELATIONSHIP OF THE PARTIESMain Contract, Art. 13. The Main Contract between CABGOC and Operatec also includes an arbitration provision:
This is a Contract for Services and shall not be construed as a charter or lease of CONTRACTOR's equipment. All of CONTRACTOR's Operations are those of an independent contractor, and CONTRACTOR, its employees, agents and representatives are not employees or agents of COMPANY. As an independent contractor, CONTRACTOR assumes all legal and contractual obligations arising out the performance of the Work, no matter to whom such obligations may be owing, whether to the Country or any political subdivision thereof, to CONTRACTOR's own personnel or to third persons. Use of subcontractors by CONTRACTOR shall not relieve CONTRACTOR from any liability or obligation under this Contract. The terms of this Contract regarding CONTRACTOR's Work to be performed, its equipment and personnel shall likewise apply to any subcontractor's Work to be performed, its property and personnel as if such Work, property and personnel were the Work, property and personnel of CONTRACTOR. COMPANY may instruct and direct CONTRACTOR as to the results to be obtained from CONTRACTOR's employees. CONTRACTOR, as an independent contractor, however, shall have complete control, supervision and direction over its equipment and personnel and over the manner and method of all its Operations.
18. APPLICABLE LAW AND SETTLEMENT OF DISPUTESMain Contract, Art. 18. The Main Contract also contains a non-assignment provision:
This Contract, including this Article 18, shall be governed, construed, interpreted, enforced and the relationship of the parties determined in accordance with the laws of California, U.S.A., without regard to its choice of law rules.
18.1 Any dispute, controversy or claim arising out of, in relation to, or in connection with this Contract or the operation/activities carried out under this Contract, including without limitation any dispute as to the existence, construction, validity, interpretation, enforceability or breach of this Contract (hereafter "Dispute") shall be exclusively and finally settled as set forth hereafter.
16. ASSIGNMENTMain Contract, Art. 16.
. . .
16.2 CONTRACTOR [Operatec] may not assign any of its rights or obligations under this Contract without the prior written consent of COMPANY. Any government approvals required therefor shall be the sole responsibility of CONTRACTOR.
B. The Subcontract
Also on May 1, 2009, Operatec entered into a subcontract agreement with Superior Energy, whereby Superior Energy (as Subcontractor) agreed to perform the services as defined in the Main Contract, on behalf of Operatec (as Contractor) upon the terms and conditions set forth in the subcontract. Am. Pet. ¶ 9 and Ex. B (the "Subcontract"). The Subcontract provides as follows:
WHEREAS, Contractor entered into [the Main Contract] dated 1 May 2009 between it, as the main contractor, and Cabinda Gulf Oil Company Limited ("Company"); andSubcontract at 1. Superior Energy directly provided the Work and Services to CABGOC, and CABGOC worked with Superior Energy personnel on a daily basis in connection with CABGOC's offshore oil and gas exploration and development activities. Am. Pet. ¶ 10.
WHEREAS, the Main Contract pertains to the supply of diving services for the performance of certain services associated with Company's offshore exploration or production activities all as more fully described in the Main Contract; and
WHEREAS, Subcontractor has agreed to perform the Services (defined below) on behalf of Contractor upon the terms and conditions herein set forth; . . .
1. The Services
1.1 The Subcontractor shall perform the "Services" as defined in, and to be performed by Contractor under, the Main Contract (the "Services"). . . .
1.2 Subcontractor agrees to be bound by all the terms and conditions of the Subcontract and the Main Contract as it relates to the Services and assumes all of the obligations of Contractor to Company as set forth in those terms of the Main Contract in relation to the performance of the Services. Likewise, Contractor agrees to extend to Subcontractor all rights and benefits under the Main Contract which are extended to Subcontractor by Company in relation to the performance of the Services. The Main Contract is attached hereto in Appendix A and made a part hereof.
1.3 This Subcontract and the Main Contract are intended to supplement and complement each other and shall, where possible, be
thusly interpreted. If, however, any provision of this Subcontract conflicts with any provision of the Main Contract, the terms of the Subcontract shall govern the relationship between Contractor and Subcontractor. The Services shall be governed by the Main Contract.
C. Amendment No. 2 to Main Contract
On March 20, 2011, CABGOC and Operatec entered into Amendment No. 2 to the Main Contract, providing for the work performed by the subsea operations vessel (SOV) Ullswater in making certain subsea repairs and related support services. Am. Pet., Ex. F ("Amendment No. 2"). The Ullswater is owned by a subsidiary of Superior Energy, Hallin Marine, LLC. Am. Pet. ¶ 11, n.1. From about April to July 2011, Superior Energy provided the Ullswater and the equipment and personnel to support the Ullswater subsea repair activities as described in Amendment No. 2. Am. Pet. ¶ 11.
D. Nonpayment Dispute
Superior Energy alleges that it issued a number invoices through Operatec to CABGOC for the use of the Ullswater and related equipment and personnel. CABGOC agreed to pay some, but not all, of the invoices. Superior Energy then reissued the charges as two separate invoices to separate the undisputed charges from the disputed charges which totaled $2,028,574 (the "Ullswater Disputed Invoice"). Am. Pet. ¶ 12.
E. Superior Energy's Settlement with Operatec
Superior Energy and Operatec mediated their disputes arising out of the Subcontract and entered a settlement agreement on January 15, 2013, whereby Superior Energy released Operatec from all claims associated with the Ullswater Disputed Invoice and reserved its rights as against CABGOC for payment of the Ullswater Disputed Invoice:
The Ullswater Claims. SES [Superior Energy Services, LLC] agrees to release Operatec and Ray from and against all claims, disputes and liabilities arising out of, relating to or in connection with those claims associated with SES invoices submitted to CABGOC in connection with the Ullswater Disputed Invoices; however, OperatecAm. Pet., Ex. G at 3 (the "Settlement Agreement").
acknowledges that SES reserves its rights as against CABGOC for payment of the Ullswater Disputed Invoices. The scope of this release shall not inure to the benefit of CABGOC, and SES reserves all rights to pursue payment from CABGOC and any other appropriate party not released hereby. . . .
The parties entered a supplement to the settlement agreement on May 24, 2013, which included a provision that "the Settlement Agreement provides that SES, and not Operatec, has the right to pursue any and all claims for recovery of any allegedly unpaid sums for the Work or Services supplied by SES, as reflected in the Ullswater Disputed Invoices." Am. Pet., Ex. G ¶ 2 (the "Supplement to Settlement"). The Supplement to Settlement further provides that the settlement agreement was not intended to constitute an assignment in violation of nonassignment provision of Article 16.2 of the Main Contract. Am. Pet., Ex. G ¶ 6.
F. Demand for Arbitration
By letter dated March 6, 2013, Superior Energy suggested that CABGOC mediate the payment for services covered by the Ullswater Disputed Invoice, and if mediation was unsuccessful, to arbitrate the dispute. Am. Pet., Ex. C. CABGOC refused to mediate and indicated that it would reject any notice of arbitration. Am. Pet., Ex. D.
On April 26, 2013, Superior Energy filed a demand for arbitration before the American Arbitration Association for nonpayment and breach of the Main Contract and Amendment No. 2. Am. Pet., Ex. E.
On June 7, 2013, Superior Energy filed the instant petition for an order to compel arbitration. Superior Energy and CABGOC have agreed to stay the arbitration pending the court's ruling on the petition. Am. Pet. at 7 n.2. Pursuant to the stipulations of the parties, the court issued briefing schedules on the first amended petition, and the operative petition is fully briefed. In support of its reply, Superior Energy submitted declarations attesting to the factual allegations made in the first amended petition. The court declines to consider these declarations on the ground that they were improperly raised in reply, even after CABGOC stipulated to the filing of an amended petition, affording CABGOC no opportunity to respond to the statements made therein. The evidentiary objections raised by CABGOC are overruled as moot.
LEGAL STANDARD
Section 2 of the Federal Arbitration Act (FAA) provides that a written arbitration agreement in "a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable." 9 U.S.C. § 2. Any party bound to an arbitration agreement that falls within the scope of the FAA may bring a motion in federal district court to compel arbitration and dismiss or stay the proceedings. 9 U.S.C. §§ 3, 4. The FAA eliminates district court discretion and requires the court to compel arbitration of issues covered by the arbitration agreement. Dean Witter Reynolds, Inc., v. Byrd, 470 U.S. 213, 218 (1985). The role of the federal courts in these circumstances is limited to determining whether the arbitration clause at issue is valid and enforceable under § 2 of the FAA. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). That is, the court must determine whether there is an agreement between the parties to arbitrate; the claims at issue fall within the scope of the agreement; and the agreement is valid and enforceable. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004).
An arbitration agreement governed by the FAA is presumed to be valid and enforceable. See Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226-227 (1987). The party resisting arbitration bears the burden of showing that the arbitration agreement is invalid or does not encompass the claims at issue. See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 92 (2000). Because of the strong federal policy favoring arbitration, doubts or ambiguities must be resolved in favor of and not against arbitration. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011) (citing Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983)).
The right to compel arbitration stems from a contractual right, and that contractual right may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration. Britton v. Co-op Banking Grp., 4 F.3d 742, 744 (9th Cir. 1993) (citing Lorber Industries of California v. Los Angeles Printworks Corp., 803 F.2d 523, 525 (9th Cir. 1986)). An entity that is neither a party to nor agent for nor beneficiary of the contract lacks standing to compel arbitration. Id. (citing E.E.O.C. v. Goodyear Aerospace Corp., 813 F.2d 1539, 1543, n. 2 (9th Cir. 1987)). Nonsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles. Britton, 4 F.3d at 745 (citing Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185, 1187 (9th Cir. 1986)).
DISCUSSION
A. The Written Agreements Do Not Assign Operatec's Rights to Superior Energy.
This dispute involves two separate contracts for providing subsea operations vessel and other services in support of CABGOC's offshore oil exploration and development efforts in Angola:
(1) the Main Contract between CABGOC and Operatec; andIt is undisputed that under Article 18 of the Main Contract, CABGOC agreed to arbitrate any disputes arising out of the contract with Operatec. It is further undisputed that Superior Energy was not a party to the Main Contract. The contractual issues in dispute are whether CABGOC and Operatec expressly assigned the rights and benefits under the Main Contract to Superior Energy pursuant to Section 13 of the Main Contract and Sections 1.2 and 1.3 of the Subcontract, and whether Operatec assigned to Superior its causes of action against CABGOC to pursue payment for services billed in the Ullswater Disputed Invoice.
(2) the Subcontract between Operatec and Superior Energy.
1. Legal Standard
"'The burden of proving an assignment falls upon the party asserting rights thereunder.'" Heritage Pac. Fin., LLC v. Monroy, 215 Cal. App. 4th 972, 988-89 (2013) (quoting Cockerell v. Title Ins. & Trust Co., 42 Cal. 2d 284, 292 (1954)), rev. denied July 31, 2013. "An assignment agreement 'must describe the subject matter of the assignment with sufficient particularity to identify the rights assigned.'" Id. (quoting Mission Valley East, Inc. v. County of Kern, 120 Cal. App. 3d 89, 97 (1981)). "As with contracts generally, the nature of an assignment is determined by ascertaining the intent of the parties." Id.
In determining whether an assignment has been made, the intention of the parties as manifested in the instrument is controlling. California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 203 Cal. App. 4th 1328, 1335 (2012) (citations and internal quotation marks omitted). "'An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.'" Id. at 1337 (quoting Rest. 2d Contracts (1981) § 317(1)).
2. Main Contract
Superior Energy contends that CABGOC and Operatec assigned the rights and responsibilities under the Main Contract to Superior Energy, citing Article 13 of the Main Contract which provides that its terms "regarding [Operatec's] Work to be performed, its equipment and personnel shall likewise apply to any subcontractor's work to be performed, its property and personnel as if such Work, property and personnel were the Work, property and personnel of [Operatec]."
The provision of the Main Contract cited by Superior Energy does not evidence an intent to transfer Operatec's rights to Superior Energy. Article 13 requires that the terms of the Main Contract regarding Operatec's work to be performed under the contract must also apply to any subcontractor's work, thereby requiring the scope of work performed by a subcontractor to be consistent with the scope of work defined in the Main Contract. Superior Energy contends that this provision amounts to express assignment of the rights and obligations under the Main Contract to Superior Energy, but cites no provision in the Main Contract where Operatec purports to assign its rights to Superior Energy, so as to extinguish its own right to performance and its obligations under the contract. As Article 13 states, "Use of subcontractors by [Operatec] shall not relieve [Operatec] from any liability or obligation under the Contract."
3. Subcontract
Superior Energy contends that the Subcontract contains an express assignment by Operatec of its rights under the Main Contract to Superior Energy. Mot. at 11. Section 1.2 of the Subcontract provides that Superior Energy "assumes all of the obligations of Contractor [Operatec] to Company [Superior Energy] as set forth in those terms of the Main Contract in relation to the performance of the Services." Section 1.2 further provides, "Likewise, Contractor agrees to extend to Subcontractor all rights and benefits under the Main Contract which are extended to Subcontractor by Company in relation to the performance of the Services." Sections 1.2 and 1.3 express the parties' agreement that Superior Energy would perform the services to be performed by Operatec under the Main Contract, as reflected in Section 1.1 ("Subcontractor shall perform the "Services" as defined in, and to be performed by Contractor under, the Main Contract"), and that Superior Energy would be bound by the scope of work defined by the Main Contract "in relation to the performance of the Services." Although these particular terms contain language, standing alone, that would support Superior Energy's argument that Operatec assigned its rights and obligations under the Main Contract to Superior Energy, when taken in the context of the entire agreement, these provisions of the Subcontract do not effect an assignment of the Main Contract by Operatec to Superior Energy. See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 473 (1998) ("Any contract must be construed as a whole, with the various individual provisions interpreted together so as to give effect to all, if reasonably possible or practicable.") (citing Cal. Civ. Code § 1641; Cal. Code Civ. Proc. § 1858; 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts § 686 at 619-20.)
a. Payment Under Main Contract Remained Payable to Operatec, Not Superior Energy
Section 2 of the Subcontract, which governs Operatec's obligation to pay Superior Energy for full performance of the services defined in the Main Contract, does not indicate that Superior Energy was assigned Operatec's right to payment under the Main Contract. Rather, the Subcontract recognized that the amounts due under the Main Contract remained payable to Operatec: "Contractor [Operatec] shall pay Subcontract [Superior Energy] all amounts due and payable to Contractor under the Main Contract." Subcontract § 2 (emphasis added).
Accordingly, Section 3 of the Subcontract provides that CABGOC's payments under the Main Contract would be deposited into an Angolan bank account held by Operatec, and that Operatec would transfer the Main Contract payments to an offshore account established by Superior Energy. These provisions governing payment obligations and procedures show that Operatec did not assign to Superior Energy the right to payment from CABGOC under the Main Contract, but show that the parties intended that Superior Energy would receive payment from Operatec under the terms set forth in the Subcontract.
b. Consent to Assignment Provision of Subcontract
Section 4.4 of the Subcontract expressly prohibits Operatec from assigning its rights and obligations under the Main Contract without Superior Energy's consent. This provision is inconsistent with an assignment by Operatec of all its rights under the Main Contract to Superior Energy. That is, the following consent-to-assignment provision in the Subcontract would not be necessary if the rights under the Main Contract had been assigned to Superior Energy:
4.4 Contractor shall not assign, transfer, encumber, pledge or otherwise dispose of the Main Contract, in whole or in part, or any of its rights and obligations thereunder without the prior written consent of Subcontractor.Read in the context of this consent-to-assignment provision, Sections 1.2 and 1.3 do not demonstrate an intent to assign or transfer Operatec's rights under the Main Contract to Superior Energy. See City of Atascadero, 68 Cal. App. 4th at 473 ("Courts must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless.") (citations omitted).
CABGOC refers to section 1.2 as a "pass-through" provision, Opp. at 11, and neither party addresses or disputes the issue whether the Subcontract included a pass-through agreement. See Sehulster Tunnels/Pre-Con v. Traylor Bros., Inc./Obayashi Corp., 111 Cal. App. 4th 1328, 1348-49 (2003) (when an owner's breach of a construction contract with a general contractor results in damage to a subcontractor who lacks standing to assert a claim directly against the owner, "a general contractor is permitted to present a pass-through claim on behalf of the subcontractor against the [owner]") (citations omitted). There is no indication in the record, however, that Operatec has filed a pass-through claim against CABGOC on behalf of Superior Energy under California law, and under the contractual relationships of the parties, Superior Energy lacks standing to make a demand for arbitration directly against CABGOC.
4. Settlement Agreement and Supplement
Superior Energy also contends that pursuant to the Settlement Agreement resolving the disputes arising out of the Subcontract, Operatec assigned to Superior Energy its "exclusive right to pursue any claims against CABGOC for non-payment of $2,028,574, as reflected in the Ullswater Disputed Invoices." Reply at 6. CABGOC counters that the language of the Settlement Agreement and the Supplement to Settlement does not effectively assign Operatec's causes of action to Superior Energy.
a. Settlement Agreement Does Not Assign Operatec's Claims Against CABGOC
Superior Energy relies on the following provision of its Settlement Agreement with Operatec to demonstrate that Operatec assigned its causes of action under the Main Contract to Superior Energy:
The Ullswater Claims. SES [Superior Energy Services, LLC] agrees to release Operatec and Ray from and against all claims, disputes and liabilities arising out of, relating to or in connection with those claims associated with SES invoices submitted to CABGOC in connection with the Ullswater Disputed Invoices; however, Operatec acknowledges that SES reserves its rights as against CABGOC for payment of the Ullswater Disputed Invoices. The scope of this release shall not inure to the benefit of CABGOC, and SES reserves all rights to pursue payment from CABGOC and any other appropriate party not released hereby. Operatec acknowledges and affirms that it has not intended by any act or communication to acquiesce in or agree to CABGOC's non-payment of the Ullswater Disputed Invoices and that Operatec has not released or agreed to waive payment by CABGOC of the Ullswater Disputed Invoices. Operatec acknowledges that it is neutral as to the merits or lackSettlement Agreement § 2.1(iv) (emphasis added). Though Superior Energy contends that Operatec assigned to Superior Energy the right to pursue causes of action against CABGOC to recover money damages for breach of the Main Contract, the language of the Settlement Agreement does not express any intent by Operatec to assign its claims against CABGOC.
thereof of the Ullswater Disputed Invoices. If SES proceeds at its own time and expense to seek payment through either negotiation or the filing of a claim, Operatec relinquishes any right it may have to collect its associated 9% management fees that would otherwise routinely be retained by Operatec. In the event SES succeeds in obtaining further payment of the Ullswater Disputed Invoices, and if such payment must be made through the Operatec account, then Operatec will cooperate and progress the payment of such further payments to Superior, consistent with Operatec's procedures under this Agreement and the Subcontract. As to the Ullswater Disputed Invoices, the release provided hereby to Operatec and Ray by this Agreement is absolute and effective regardless of whether or not SES receives payment of such invoices.
This provision of the Settlement Agreement (1) "releases" Operatec from liability related to the Ullswater Disputed Invoices and (2) "reserves" Superior Energy's rights to collect against CABGOC, but contains no language assigning Operatec's claims against CABGOC to Superior Energy. The Settlement Agreement provides that Superior Energy "reserves all rights to pursue payment from CABGOC," but there is no assignment of Operatec's right to pursue payment from CABGOC. This provision only serves to reserve whatever rights that Superior Energy had in pursuing payment from CABGOC on the Ullwater Disputed Invoices. The language of the Settlement Agreement does not purport to transfer Operatec's right to seek money due under the Main Contract to Superior Energy. It is entirely plausible, and consistent with the language of the Settlement Agreement, that Operatec and Superior Energy intended to effect such an assignment, particularly in light of Superior Energy's release of claims against Operatec. But if this was the parties' intention, it was not manifested in the written instrument. Applying general principles of contract interpretation under California law, this provision of the Settlement Agreement is insufficient to create an assignment of the right to payment. "While no particular form of assignment is required, it is essential to the assignment of a right that the assignor manifests an intention to transfer 'the right.'" Heritage Pac. Fin., LLC v. Monroy, 215 Cal. App. 4th 972, 990 (2013) (citing Sunburst Bank v. Executive Life Ins. Co., 24 Cal. App. 4th 1156, 1164 (1994)), rev. denied Jul. 31, 2013.
b. Supplement to Settlement Agreement Does Not Assign Operatec's Claim Against CABGOC for Unpaid Sums
Superior Energy also relies on the Supplement to the Settlement Agreement as evidence of the assignment to Superior Energy of Operatec's right to recover against CABGOC: "Sec. II(2.1)(iv) of the Settlement Agreement provides that SES [Superior Energy Services, LLC], and not Operatec, has the right to pursue any and all claims for recovery of any allegedly unpaid sums for the Work or Services supplied by [Superior Energy], as reflected in the Ullswater Disputed Invoices." Even if this statement were intended to clarify the parties' understanding that Operatec assigned its right to recover against CABGOC to Superior Energy, it is unclear whether Operatec relinquished its right to recover damages to Superior Energy, such that Superior Energy would "step into the shoes" of Operatec for purposes of recovering the unpaid money owed under the Main Contract. Mot. at 12 (citing In re Boyajian, 564 F.3d 1088, 1091 (9th Cir. 2009) (recognizing that "under general principles of assignment law an assignee steps into the shoes of the assignor")). At most, this statement indicates the parties' understanding that Superior Energy would pursue a claim against CABGOC for the disputed invoices, but not that Operatec transferred, assigned or relinquished its right to pursue the same claim against CABGOC. The Supplement to the Settlement Agreement does not sufficiently manifest an intent to assign Operatec's right. See Mission Valley E., Inc. v. Cnty. of Kern, 120 Cal. App. 3d 89, 96-97 (1981) ("Although the general rule in California is that choses in action or other personal rights to claim money are freely assignable, nonetheless, proof of the intent to assign must be 'clear and positive' to protect the obligor . . . from any further claim by the primary obligee") (quoting Cockerell v. Title Ins. & Trust Co., 42 Cal. 2d 284, 292 (1954)).
Because the Settlement Agreement and Supplement do not sufficiently manifest Operatec's intent to assign to Superior Energy the right to claim money due or recover money damages under the Ullswater Disputed Invoice, Superior Energy does not have standing to compel arbitration to pursue that claim. To allow Superior Energy to proceed in the absence of an effective assignment of that right would create the potential risk that CABGOC would face claims from both Superior Energy and CABGOC. See Henkel Corp. v. Hartford Accident & Indem. Co., 29 Cal. 4th 934, 945 (2003) ("If both assignor and assignee were to claim the right to defense, the insurer might effectively be forced to undertake the burden of defending both parties.").
Despite the strong federal policy in favor of arbitration, Superior Energy has not met its burden to prove an assignment of the right to recover damages under the Main Contract which contained the arbitration provision. If Superior Energy had obtained a clearly worded assignment from Operatec of its right to recover damages against CABGOC, Superior Energy would likely be able to proceed to arbitration. Under California law, "'[a]n assignment for collection vests legal title in the assignee which is sufficient to enable him to maintain an action in his own name, but the assignor retains the equitable interest in the thing assigned.'" California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd., 203 Cal. App. 4th 1328, 1335 (2012) (quoting Harrison v. Adams, 20 Cal.2d 646, 650 (1942)). The written settlement documents are consistent with an assignment but do not sufficiently show an intent to assign Operatec's right of recovery to Superior Energy, and Superior Energy has not even offered declarations to show that either Superior Energy or Operatec intended such an assignment when it entered the Settlement Agreement with Superior Energy.
c. Non-Assignment Provision Does Not Necessarily Prohibit Assignment of Claim for Money Due
CABGOC argues that even if Operatec had assigned its rights under the Main Contract to Superior Energy, such an assignment without CABGOC's prior consent is prohibited by the Main Contract. Superior Energy does not appear to dispute this point, but rather argues that Operatec expressly assigned its right to recover against CABGOC. See Reply at 2 ("The claims belong to Superior Energy because Operatec expressly assigned its causes of action against CABGOC (not its contract rights under the Main Contract) to Superior Energy.").
CABGOC does not dispute that under California law, a contractual provision that restricts assignment of the contract does not generally prohibit "an assignment of claims." Opp. at 15. See Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934, 945 (2003) (a non-assignment clause does not preclude assignment "(1) when at the time of the assignment the benefit has been reduced to a claim for money due or to become due, or (2) when at the time of the assignment the insurer has breached a duty to the insured, and the assignment is of a cause of action to recover damages for that breach"); Benton v. Hofmann Plastering Co., 207 Cal. App. 2d 61, 67 (Cal. Ct. App. 1962) ("There is a distinction between an assignment of a contract and an assignment of the proceeds of the contract.") (citation omitted). CABGOC argues, however, that even if Operatec had assigned its claims to Superior Energy, such assignment would not give Superior Energy the right to arbitrate that assigned claim. Because the settlement documents cited by Superior Energy do not manifest a "clear and positive" intent by Operatec to assign its right to claim money due or recover damages against CABGOC, it is not necessary to reach the question whether assignment of a claim for money due would be grounds to compel arbitration of that claim.
Because Superior Energy has failed to show that Operatec assigned its rights under the Main Contract, Superior Energy does not have standing to compel arbitration. The petition for an order compelling arbitration is therefore DENIED. Superior Energy's request, in the alternative, for leave to file an amended petition is denied as futile on the ground that Superior Energy lacks standing to bring a claim under the arbitration agreement. To the extent that Superior Energy asks for leave to keep the case open to file a complaint, the request is DENIED on the ground that this case is fully adjudicated and judgment will be entered. If Superior Energy chooses to file a complaint, any complaint based on the parties' rights under the Main Contract will likely raise similar standing concerns as the issues raised in this petition to compel arbitration. The court has no opinion, however, as to whether Superior Energy may bring a complaint on some other basis.
C. Third Party Beneficiary
Superior Energy contends that it may compel arbitration as a non-signatory because it is a third-party beneficiary of the Main Contract, which contemplates that Operatec would hire a subcontractor to complete the work. Superior Energy did not raise this point during oral argument, but its briefs rely on authorities finding third party beneficiary status under contracts outside the context of a construction project. CABGOC, by contrast, cites contrary authority governing third party beneficiary status under construction agreements, which is more directly applicable to this dispute.
1. Legal Standard
California Civil Code section 1559 provides, "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." The promise in such a situation is treated as having been made directly to the third party. Outdoor Services, Inc. v. Pabagold, Inc., 185 Cal. App. 3d 676, 681 (1986) (citing Shell v. Schmidt, 126 Cal. App. 2d 279, 290 (1954)). It is not necessary that an express beneficiary be specifically identified in the contract; he or she may enforce it if he or she is a member of a class for whose benefit the contract was created. Id.
Under California law, a purported third-party beneficiary must show that the contract was "made expressly for the benefit of a third person." Cal. Civ. Code § 1559; Trustees of Screen Actors Guild-Producers Pension and Health Plans v. NYCA, Inc., 572 F.3d 771, 779 (2009). California courts interpret the word "expressly" as the negative of "incidentally." Spinks v. Equity Residential Briarwood Apts., 171 Cal. App. 4th 1004 (2009). Thus, "it is not enough that the third party would incidentally have benefited from performance. . . . The contracting parties must have intended to confer a benefit on the third party." Spinks, 171 Cal. App. 4th at 1004 (citation and internal quotation marks omitted).
2. Analysis
Superior Energy relies primarily on the holding of Outdoor Services to assert that it is an intended third party beneficiary of the Main Contract and therefore has standing to enforce the arbitration agreement. However, the reasoning of Outdoor Services has not been applied to the construction context. Under Southern Cal. Acoustics Co. v. C.V. Holder, Inc., 71 Cal. 2d 719 (1969), California law requires a stronger showing of intent to benefit a subcontractor in the construction context to grant third party beneficiary status under a construction agreement.
a. Outdoor Services
In Outdoor Services, the court of appeal recognized that a non-party to a contract may enforce an arbitration agreement as a third party, creditor beneficiary if "the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee." 185 Cal. App. 3d at 682. The contract at issue there was a manufacturer's contract with an advertising agency for an advertising campaign, whereby the agency would make contracts with advertising media and others to effectuate the manufacturer's ad campaign, and the manufacturer agreed to pay the advertising agency for its services. Outdoor Servs., 185 Cal. App. 3d at 682. There, the court held that a non-party owner of advertising space who had contracted with the advertising agency to provide outdoor advertising space was a third party beneficiary of the manufacturer's promise to pay for services under the advertising contract. The court determined that the manufacturer knew that the advertising agency would contract with third parties to effectuate the advertising campaign. The court found that the manufacturer, as the promisor, realized that it was assuming the advertising agency's duty to pay for the fees for goods and services that would be incurred to effectuate the advertising campaign. Id. at 683. Therefore, the third party owner of the outdoor advertising space was a third-party beneficiary of the manufacturer's promise to pay. Id. See also Ronay Family Ltd. P'ship v. Tweed, 216 Cal. App. 4th 830, 837 (2013) (applying Outdoor Services to find third party beneficiary standing to enforce an arbitration clause of an agreement between brokerage firm and a customer to open an investment account).
Superior Energy argues that the Main Contract expressly contemplated the use and payment of subcontractors to complete the work required under the Main Contract, and that Superior Energy is an intended third party beneficiary under the reasoning of Outdoor Services. Reply at 9. Superior Energy does not, however, cite authority applying the holding of Outdoor Services to the construction or general contractor context to find that a subcontractor is a third party beneficiary under a construction contract merely because the contract contemplates that a subcontractor would be paid for work specified in the general contract. In the construction context, as discussed below, California law requires a showing of specific intent to benefit a subcontractor in order to find third party beneficiary standing.
b. California Law Governing Construction Contracts
In opposition, CABGOC cites Southern Cal. Acoustics Co. v. C.V. Holder, Inc., 71 Cal. 2d 719 (1969), in which the California Supreme Court held that a subcontractor cannot recover directly from the public entity that owns a construction project as a third-party beneficiary unless it was specifically intended to benefit from the issuance of the general contract. There, the court found that the subcontractor was named in the general contract for a school construction project because the listing of subcontractors was required by statute, but not "because the contracting parties' purpose was expressly to benefit it." Id. at 727-28. The court held that the subcontractor "was at most an incidental beneficiary and therefore cannot recover as a third-party beneficiary of the contract between [the general contractor] and the school district." Id. at 728.
The parties do not address the apparent inconsistency in the authorities that they cite in the construction context and outside the construction context on the question of third party beneficiary status. Because this dispute involves contracts to provide services for an oil exploration project that is similar to projects in the construction industry, this case is governed by the state supreme court's holding in Southern Cal. Acoustics rather than Outdoor Services, which was issued by a lower appellate court and does not apply to the specific context of a construction agreement. If the reasoning of Outdoor Services were applied to construction contracts, third party beneficiary status would be conferred on every subcontractor that performed work governed by the general contract because a construction contract typically contemplates that a subcontractor would be hired and paid to do some or all of the work required under the general contract. In Southern Cal. Acoustics, by contrast, the court required evidence that the general contractor and the public entity intended to benefit the subcontractor, and held that the subcontractor was an incidental beneficiary, even though the subcontractor was named in the contract by legal mandate. Applying Southern Cal. Acoustics here, Superior Energy would have to show more than the contemplation of hiring and paying a subcontractor as evidence of the parties' intent to benefit the subcontractor in the Main Contract.
Superior Energy fails to demonstrate that the parties to the Main Contract intended to benefit the subcontractors who performed work on the project. Under Southern Cal. Acoustics, Superior Energy is "at most an incidental beneficiary," and cannot enforce the arbitration agreement between Operatec and CABGOC.
D. Equitable Estoppel
Superior Energy contends that it may compel arbitration as a nonsignatory to the arbitration agreement under the doctrine of equitable estoppel.
1. Legal Standard
"Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes." Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006) (citation omitted). The Ninth Circuit has recognized that in the arbitration context, the equitable estoppel doctrine has generated two lines of cases. "Under the first of these lines, nonsignatories have been held to arbitration clauses where the nonsignatory 'knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement.'" Id. (quoting E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 199 (3d Cir. 2001)). "Under the second line of cases, signatories have been required to arbitrate claims brought by nonsignatories 'at the nonsignatory's insistence because of the close relationship between the entities involved.'" Id. (quoting DuPont, 269 F.3d at 199).
2. The Doctrine of Equitable Estoppel Does Not Confer Standing to Compel Arbitration on a Nonsignatory Who Brings Claims Against a Signatory to an Arbitration Agreement
Superior Energy, as a nonsignatory, seeks enforcement of the arbitration agreement under the line of cases recognizing a nonsignatory's right to compel arbitration. Superior Energy relies on authority recognizing that where a signatory to an arbitration agreement brings claims against a nonsignatory, the signatory is estopped from refusing to arbitrate its claims against the defendant nonsignatory where "the issues the [nonsignatory] is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed." Mot. at 13-14 (citing In re Apple & AT&T Mobility Antitrust Litig., 826 F. Supp. 2d 1168, 1176 (N.D. Cal. 2011) (granting defendants' motions to compel arbitration) (citing JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 177 (2d Cir. 2004) (internal quotation marks omitted), petition for permission to appeal denied sub nom. Holman v. Apple, Inc., No. 12-80012 (9th Cir. Apr. 27, 2012)). In re Apple presented a situation where a nonsignatory defendant sought arbitration of the claims against it brought by a signatory to an arbitration agreement. In that situation, the Ninth Circuit has recognized that a nonsignatory may compel a signatory to arbitrate the signatory's claims based on estoppel if two requirements are met: (1) "the subject matter of the dispute was intertwined with the contract providing for arbitration," and (2) there exists "a relationship among the parties of a nature that justifies a conclusion that the party which agreed to arbitrate with another entity should be estopped from denying an obligation to arbitrate a similar dispute with the adversary which is not a party to the arbitration agreement." Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1046 (9th Cir. 2009) (affirming denial of motion to compel arbitration) (citing Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354, 359, 361 (2d Cir. 2008)).
Unlike In re Apple and Mundi, where the nonsignatory sought to compel arbitration of a signatory's claims against it, Superior Energy, a nonsignatory, seeks arbitration of its own claims against a signatory. The principles of equitable estoppel that preclude a signatory from avoiding arbitration of the signatory's claims against a nonsignatory do not work to the advantage of a nonsignatory that lacks standing to compel arbitration of the nonsignatory's claims against a signatory. In DuPont, the Second Circuit recognized that where a nonsignatory parent company seeks to compel arbitration of its claims against a signatory pursuant to an arbitration agreement signed by a subsidiary of the nonsignatory parent company, the signatory would be bound to arbitration because "[i]n essence, [the] nonsignatory voluntarily pierces its own veil to arbitrate claims against a signatory that are derivative of its corporate subsidiary's claims against the same signatory." DuPont, 269 F.3d at 201 (citations omitted]). Under this reasoning, a parent corporation may pierce its own corporate veil to arbitrate its claims under an arbitration agreement entered by a subsidiary, but Superior Energy cannot assert this basis for equitable estoppel because it does not have a parent-subsidiary relationship with any signatory to the Main Contract.
Superior Energy cites no authority recognizing a nonsignatory's right to compel arbitration of its own claims against a signatory to an arbitration agreement under an equitable estoppel theory. Notwithstanding Superior Energy's compelling argument that CABGOC should not be permitted to rely on artfully drafted contracts in a "gotcha" scheme to avoid liability for services rendered, if the equitable estoppel exception to the standing requirement were applied as Superior Energy proposes, the exception would swallow the rule. Superior Energy lacks any equitable estoppel ground to compel arbitration.
E. Incorporation by Reference
Superior Energy contends that it is entitled to compel arbitration against CABGOC because the Subcontract expressly incorporates all the terms and conditions of the Main Contract. Mot. at 16. Superior Energy fails to demonstrate, however, that it has a contractual relationship with CABGOC that would entitle it to arbitrate with CABGOC.
Superior Energy cites Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995), in support of its argument that CABGOC should be compelled to arbitrate Superior Energy's claims. In Thomson, the Second Circuit recognized incorporation by reference as grounds for binding nonsignatories to arbitration agreements where the nonsignatory has a separate contractual agreement that incorporates the arbitration clause. See also Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006) (recognizing that a nonsignatory may be bound by an agreement to arbitrate under ordinary contract and agency principles, including incorporation by reference). In Thomson, a signatory to an arbitration agreement moved to compel arbitration against a nonsignatory parent corporation, Thomson. The court of appeals held that the party seeking arbitration did not show that the arbitration agreement was incorporated into any document which the nonsignatory adopted. Thus, the court of appeals held that the nonsignatory could not be bound under an incorporation theory. Thomson, 64 F.3d at 777.
Thomson held that an arbitration agreement could not be enforced against a nonsignatory, and is not directly applicable here, where Superior Energy, as a nonsignatory, seeks to enforce an arbitration agreement against a signatory. See CD Partners, LLC v. Grizzle, 424 F.3d 795, 799 (8th Cir. 2005) ("The test for determining whether a nonsignatory can force a signatory into arbitration is different from the test for determining whether a signatory can force a nonsignatory into arbitration."). Where a nonsignatory attempts to enforce an arbitration agreement, the court of appeals in Thomson recognized that "a nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory incorporating the existing arbitration clause." Thomson, 64 F.3d at 777 (emphasis added).
Here, Superior Energy has not demonstrated that it entered a separate agreement with CABGOC incorporating the arbitration provision of the Main Contract. In reply, Superior Energy fails to address CABGOC's argument that Thomson requires that the nonsignatory may compel arbitration against a party to an arbitration agreement if they have entered a separate contract that incorporates the arbitration provision. The petition to compel arbitration under an incorporation by reference theory therefore lacks merit.
CONCLUSION
In accordance with the foregoing, Superior Energy's first amended petition to compel arbitration is DENIED. This order terminates the case and all pending motions. The clerk shall close the file.
IT IS SO ORDERED.
______________________________
PHYLLIS J. HAMILTON
United States District Judge