In these writ proceedings, we consider the trial court's denial, without prejudice, of petitioners'
Plaintiffs' complaint, although pleading some 16 causes of action, essentially seeks recovery of damages and other relief from the several defendants for their breach of the three real estate sales contracts (hereinafter, PSA's) and the failure of some of the defendants to meet the requirements of three related deed restriction (Deed Restriction) agreements that those defendants had entered into with the City of Santa Monica, and as to one of which two of the plaintiffs, 15394 NM or NMS/JSM San Lorenzo, claim to be third party beneficiaries.
The three PSA's each contained a broad arbitration clause which petitioners moved to enforce. The trial court denied the motion to compel arbitration on the grounds that not all of the plaintiffs and only a small number of the defendants were actually signatories to the PSA's. In addition, the Deed Restriction agreements entered into by several of the defendants and the City of Santa Monica contained no arbitration clause, and the trial court concluded that those agreements were not dependent on or intertwined with the PSA's, thus giving rise to nonarbitrable disputes.
After reviewing the record in this factually complex matter, we conclude that the trial court did not have before it sufficient information to determine whether plaintiffs should be compelled to arbitrate and therefore properly denied the motion to compel without prejudice. We will therefore deny the petition and remand the matter with directions.
Preliminarily, we note that while, in broad outlines, this case appears to be a dispute between Jones and Jones-related entities on one side and Shekhter
JSM Construction, a Jones-related entity, was an active real estate developer in the City of Santa Monica (the City). In or about 2004 and 2005, JSM Construction was granted administrative approval to develop four mixed-use buildings,
At approximately the same time, Jones contracted to sell to Shekhter, for $4 million, a "deed restricted" affordable housing apartment building in the City. The contract was originally dated November 11, 2004, and pertained to the sale of "1244 [6th] Street, or, in the sole discretion of Seller, such other property reasonably comparable in size and location developed by Seller [with a deed restricted affordable housing apartment building]." On or about September 15, 2005, the agreement was amended to designate the property to be sold as the property located at 711 Colorado Avenue. Pursuant to the 711 Colorado PSA, Shekhter paid a $500,000 deposit toward the total purchase price of $4 million. The PSA provided that Jones was to develop and
JSM Construction then agreed with the City that it would satisfy its affordable housing requirements with respect to the properties at 626 Broadway, 1548 6th Street, 1418 7th Street, and 1539 4th Street, by constructing the necessary amount of affordable housing units at 711 Colorado. Pursuant to the City's requirements, a deed restriction was to be recorded on the property to insure that the offsite affordable housing units would be maintained for 55 years.
JSM Construction's agreement with the City was memorialized in a Deed Restriction agreement dated April 2, 2007.
By this Deed Restriction agreement, JSM Construction was permitted to develop the four properties at 626 Broadway, 1548 6th Street, 1418 7th Street, and 1539 4th Street as market-rate rental apartment buildings, as the City's requirements relating to affordable housing were to be satisfied by the affordable housing to be constructed on JSM Modena's property at 711 Colorado. For this reason, we refer to the four properties as the Modena-benefitted properties, and 711 Colorado as the Modena affordable housing property. Two of the Modena-benefitted properties, 1548 6th Street and 1539 4th Street, are now owned by two (Shekhter-related) plaintiffs in this case, NMS/JSM San Lorenzo and 15394 NM, respectively. The remaining two Modena-benefitted properties are owned by Jones-related entities (JSM
The affordable housing project was never constructed on the 711 Colorado property; the parties eventually agreed that the cost of construction would exceed the $4 million original purchase price. On May 18, 2009, the parties entered into an amendment and assignment of the PSA. The amendment indicated that the sellers were now Jones and JSM Modena, while the buyer became Shekhter-related entity (and plaintiff) NMS Properties. Pursuant to the terms of the amendment, Jones would no longer construct the affordable housing project on 711 Colorado. Instead, the property to be conveyed would consist of the property itself, all plans and specifications for the construction of the affordable housing project, any development rights related to the development project, and Jones's rights under agreements with architects, engineers, and consultants regarding the project. The purchase price was to consist solely of the buyer's assumption of a note (and security documents) on the property, and the $500,000 deposit was to be refunded at closing. Moreover, the parties would subsequently agree on a payment to be made by the sellers to the buyer to cover the costs of construction in excess of the original purchase price. Escrow was to close within five days of the buyer giving notice that it was prepared to close, but not later than November 1, 2009.
We pause at this moment for two important points. First, the amendment indicates that, if there was no agreement reached on the amount of the excess costs to be paid by the sellers, the buyer could unilaterally terminate the terms of the amendment, which would reinstate the terms of the initial agreement. There is no allegation, or evidence, that this was done. Instead, plaintiffs filed suit on the PSA as amended. Second, as expressed above, the Deed Restriction ran with the land. Thus, it was apparently contemplated at
We have set forth the factual history of this dispute with regard to the 711 Colorado property. The dispute repeated with respect to two additional parcels, with one important difference: none of the properties benefitted by the other contemplated affordable housing projects are owned by plaintiffs; instead, they are all owned by defendants. We discuss these properties briefly.
In November 2004, Jones agreed to sell to Shekhter a property at 1514 7th Street (which, before the transfer, became owned by JSM Tuscany) on which there was to be constructed a deed restricted affordable housing project, for $3.75 million, including a $500,000 deposit. On March 15, 2007, JSM Construction and JSM Tuscany entered into a Deed Restriction agreement with the City similar in terms to the Modena Deed Restriction. In this case, the four Tuscany-benefitted projects were located at 606 Broadway, 1420 5th Street, 1442 5th Street, and 507 Wilshire Boulevard. These projects are all owned by Jones-related entities, JSM Positano, JSM San Marco and JSM Arrezo.
In November 2006, Jones agreed to sell to Shekhter a property at 1437 5th Street (which, before the transfer, became owned by JSM Spoleto) on which there was to be constructed a deed restricted affordable housing project, for $4.25 million, including a $750,000 deposit. On May 18, 2009, the 1437 5th PSA was amended in terms virtually identical to that of the other two PSA's—the sellers were now Jones and JSM Spoleto; the buyer was now NMS Properties; the property to be conveyed was the 1437 5th property with all plans, development rights, and other paperwork; the sale price would be the assumption of an existing note; the deposit would be returned; there would be an additional payment from the seller for the construction costs in excess of the original sales price; and the agreement would close five days after the buyer was prepared to do so, but no later than November 1, 2009.
According to plaintiffs, defendants breached the amended PSA's, by failing to turn over the properties and related documents as agreed, and failing to refund the deposits. This is not meant, however, to be a comprehensive enumeration of defendants' alleged wrongdoing.
Because the facts of this case are so complex, we now briefly summarize the roles played by all parties. (1) Plaintiff Shekhter was the original buyer in all three PSA's; by amendment to the PSA's, he assigned his rights under each PSA to NMS Properties. Although Shekhter appears to have an interest in the other plaintiff entities, it is not entirely clear on what basis he seeks relief as an individual—particularly with respect to his breach of contract causes of action. (2) Plaintiff NMS Properties was, by virtue of assignment from Shekhter, the buyer of the three (Modena, Tuscany and Spoleto) affordable housing properties (land only), pursuant to the amended PSA's. (3) Plaintiffs 15394 NM and NMS/JSM San Lorenzo owned Modena-benefitted properties, identified in the Modena Deed Restriction agreement as properties which could be developed as market-rate rentals without affordable housing units due to the construction of the Modena affordable housing project at 711 Colorado.
We now discuss defendants and petitioners. (1) Defendant and petitioner Jones was a seller of the three affordable housing properties, pursuant to the original and amended PSA's; he also has an interest in the other defendants and petitioners. (2) Defendants and petitioners JSM Modena, JSM Tuscany and JSM Spoleto were additional sellers of the three affordable housing properties, pursuant to the amended PSA's; they were also parties to the Deed Restriction agreements with the City. (3) Defendant and petitioner JSM Construction was a party to the Deed Restriction agreements with the City. (4) The remaining defendants and petitioners each own properties, identified in the Deed Restriction agreements, which were to be benefitted by the affordable housing projects. JSM Lugano and JSM Genoa were Modena-benefitted properties; JSM Positano, JSM San Marco and JSM Arrezo were
The plaintiffs filed this action on February 24, 2010. The first amended complaint (which is the one with which we are concerned) was filed on April 30, 2010.
On April 16, 2010 (two weeks prior to the filing of the first amended complaint), the Prudential defendants filed a motion to compel arbitration, based on the arbitration clause in the PSA's. Petitioners filed a notice of joinder in that motion on June 17, 2010. Each of the PSA's contained the same very broad arbitration clause:
"NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED HEREIN DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED HEREIN. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY." (Italics added.)
Petitioners did not notice an appeal, but rather filed the pending petition for writ relief. Their petition raises issues involving unusual, if not novel, circumstances concerning the application of Code of Civil Procedure section 1281.2, subdivision (c) as well as the needs of judicial economy.
There are essentially four issues presented by these writ proceedings. First, is relief by writ of mandate, rather than appeal, appropriate in the particular circumstances of this case? We conclude that it is. Second, may defendants who are not signatories to the agreements containing an arbitration clause enforce the arbitration clause contained therein against signatory party plaintiffs who have filed suit on claims arising under the agreements? Existing law establishes that they may. Third, may nonsignatory plaintiffs who have joined in the action to assert claims based upon or arising out of the alleged breach of the contracts containing the arbitration clauses also be compelled to arbitrate, even by defendants who are not themselves signatory parties to the contracts containing the arbitration clauses? We conclude, as a matter of first impression, that they may. Finally, are all of the causes of action alleged by plaintiffs, including those for breach of the Deed Restriction agreements, inextricably intertwined with the obligations under the PSA's? We conclude that, on the record before us, a definitive answer to that question is not possible.
There are two different critical written agreements before us and there is no dispute as to their provisions. We are thus presented with legal issues to resolve, not factual ones. When "the language of an arbitration provision is not in dispute, the trial court's decision as to arbitrability is subject to de novo review." (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 771 [49 Cal.Rptr.3d 531].) Thus, in cases where "no conflicting extrinsic evidence is introduced to aid the interpretation of an agreement to arbitrate, the Court of Appeal reviews de novo a trial court's ruling on a petition to compel arbitration." (California Correctional Peace Officers Assn. v. State of California (2006) 142 Cal.App.4th 198, 204 [47 Cal.Rptr.3d 717].)
This principle finds expression in many cases. (See, for extensive list of such authorities, Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 707 [111 Cal.Rptr.3d 876].) Thus, we review the trial court's order under a de novo standard.
One pertinent exception is based on the doctrine of equitable estoppel. (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 268 [25 Cal.Rptr.3d 440] (Boucher); Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220 [92 Cal.Rptr.3d 534] (Goldman); see generally, Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group 2010) ¶¶ 5:266.10 to 5:266.25, pp. 5-190 to 5-193 (rev. # 1, 2010).) Under that doctrine, as applied in "both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are `intimately founded in and intertwined' with the underlying contract obligations." (Boucher, supra, 127 Cal.App.4th at p. 271; see Goldman, supra, 173 Cal.App.4th at pp. 217-218.) "By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement." (Boucher, supra, 127 Cal.App.4th at p. 272; see Goldman, supra, 173 Cal.App.4th at p. 220.) "The rule applies to prevent parties from trifling with their contractual obligations."
In Boucher, supra, 127 Cal.App.4th 262, the plaintiff sued Alliance Title Company, Inc. (Alliance), and Financial Title Company (Financial) in connection with a purported breach of his employment agreement with Financial. (Id. at p. 265.) Both defendants petitioned to compel arbitration under an arbitration clause in the employment agreement. The trial court denied Alliance's petition, on the ground that it was not a signatory to the employment agreement. The Court of Appeal reversed. The Boucher court concluded that, under federal law, a signatory to an arbitration clause may be compelled to arbitrate against a nonsignatory when the relevant causes of action rely on and presume the existence of the contract containing the arbitration provision. (Id. at p. 269.) In other words, a plaintiff who relies on the contractual terms in a claim against a nonsignatory may be precluded from repudiating the arbitration clause in the contract. (Id. at p. 272.) The court held that the plaintiff in Boucher was estopped from avoiding arbitration with Alliance,
Other California courts, applying federal law, have embraced the estoppel theory, holding that a signatory plaintiff who sues on a written contract containing an arbitration clause may be estopped from denying arbitration if he sues nonsignatories as related or affiliated persons with the signatory entity. (Turtle Ridge, supra, 140 Cal.App.4th at p. 833; Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714, 1716-1717 [1 Cal.Rptr.3d 328] (Metalclad).) As the court in Turtle Ridge explained: "`[T]he equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are "`based on the same facts and are inherently inseparable'" from arbitrable claims against signatory defendants.'" (Turtle Ridge, supra, at p. 833, quoting Metalclad, supra, at pp. 1713-1714.) Claims that rely upon, make reference to, or are intertwined with claims under the subject contract are arbitrable. (Boucher, supra, 127 Cal.App.4th at pp. 269-270.)
"Courts applying equitable estoppel against a signatory have `looked to the relationships of persons, wrongs and issues, in particular whether the claims that the nonsignatory sought to arbitrate were "`"intimately founded in and intertwined with the underlying contract obligations."'"'" (Metalclad, supra, 109 Cal.App.4th at p. 1713.) Application of "the estoppel doctrine in this context does not require a conscious or subjective intent to avoid arbitration, but turns upon the nexus between the contract and the causes of action asserted." (Rowe, supra, 153 Cal.App.4th at p. 1289.) "The focus is on the nature of the claims asserted by the plaintiff against the nonsignatory
"Because equitable estoppel applies only if [the] plaintiffs' claims against the nonsignatory are dependent upon, or inextricably bound up with, the obligations imposed by the contract plaintiff has signed with the signatory defendant, we examine the facts alleged in the complaints." (Goldman, 173 Cal.App.4th at pp. 229-230.)
Based on these authorities, it is clear that the signatory plaintiffs, Shekhter
The novel question raised by this writ petition is whether the nonsignatory plaintiffs (15394 NM and NMS/JSM San Lorenzo) can also be required to arbitrate their claims which are dependent upon, or inextricably intertwined with, the obligations imposed by the PSA's. We conclude that the rationale of the authorities discussed above applies equally to nonsignatory plaintiffs who bring such causes of action.
This is particularly true where, as appears to be the case here, all of the plaintiffs, signatory and nonsignatory, are related entities. A nonsignatory can be compelled to arbitrate when a preexisting relationship existed between the nonsignatory and one of the parties to the arbitration agreement, making it equitable to compel the nonsignatory to arbitrate as well. (Crowley, supra, 158 Cal.App.4th at pp. 1069-1070.) Additionally, a nonsignatory can be compelled to arbitrate when it is suing as a third party beneficiary of the contract containing the arbitration clause (id. at p. 1069); this too weighs in favor of enforcing the arbitration clause in this case.
Thus, resolution of the motion to compel arbitration should not involve, as plaintiffs would have it, counting up the number of nonsignatory plaintiffs and nonsignatory defendants, and denying the motion if there appear to be many of them. A nonsignatory plaintiff can be compelled to arbitrate a claim even against a nonsignatory defendant, when the claim is itself based on, or inextricably intertwined with, the contract containing the arbitration clause. We now turn to an analysis of plaintiffs' claims.
We are thus required to analyze the causes of action alleged in the complaint, to determine whether the claims asserted by plaintiffs are dependent upon, or inextricably intertwined with, the obligations imposed by the
The problem lies with the second category of claims—those for breach of the Deed Restriction agreements. Preliminarily, as stated above (see fn. 12, ante), it is difficult for this court to determine the theory of liability asserted by plaintiffs against the benefitted-property defendants for breach of the Deed Restriction agreements. While the issue of whether plaintiffs can ultimately state a claim for relief against these defendants will be for the trial court or arbitrator to determine, some clear explication of plaintiffs' Deed Restriction-based causes of action against these defendants is necessary for court resolution of the motion to compel arbitration—as it must be determined whether the obligation purportedly breached is one inextricably intertwined with the obligations set forth in the PSA's. Moreover, given that, under the amendment to the PSA's, NMS Properties was to receive the affordable housing properties and construct the affordable housing projects there itself, we question the basis on which any plaintiffs can assert any cause of action against defendants for breaching the Deed Restriction agreements. The Deed Restriction agreements run with the land; NMS Properties would therefore be legally obligated to meet the requirements that such agreements imposed on the property owners.
Beyond these substantial concerns, it is simply unclear as to whether the PSA's and the Deed Restriction agreements are inextricably intertwined. Certainly, a persuasive argument can be made that they are. The PSA's initially provided that Jones would construct "deed restricted" affordable housing projects on the properties; obtaining the Deed Restriction agreements could simply be seen as compliance with the obligations imposed by the PSA's. Even if the Deed Restriction agreements are seen as confirming defendants' intention to build those projects (and setting forth benefits that would be granted to other properties once the affordable housing projects were built), the initial construction obligation (and, certainly, any obligation flowing toward plaintiffs) was imposed by the PSA's.
An alternative argument also exists, at least with respect to the two Modena-benefitted property plaintiffs. These plaintiffs could conceivably assert that the Modena PSA was irrelevant. As owners of properties to be benefitted by the construction of affordable housing at Modena, by the terms of the Deed Restriction agreement, they could argue that JSM Construction's failure to construct that affordable housing harmed them—regardless of whether Jones had also promised Shekhter in the PSA that the affordable housing project would be built and/or sold to Shekhter.
Resolution of the issue of whether the Deed Restriction agreement causes of action are inextricably intertwined with the obligations under the PSA's would be dramatically aided by evidence regarding the economic benefits to be gained by Shekhter and the remaining plaintiffs by entering into the transactions at issue. With respect to the Tuscany and Spoleto projects, Shekhter had no interest in any of the properties to be benefitted by the construction of the affordable housing projects; Shekhter was simply to own (through NMS Properties) the affordable housing projects themselves. Was Shekhter intending to operate the Tuscany and Spoleto affordable housing projects at a profit? Or did he expect to gain some economic benefit from the fact that the affordable housing projects would benefit other properties, in
While the analysis is somewhat different with respect to the Modena project, as Shekhter owned two of the Modena-benefitted properties, this simply raises further questions. Did Shekhter acquire ownership of the Modena-benefitted properties before or after the Deed Restriction agreement? Did he acquire ownership before or after the PSA's? Was his acquisition of the properties an element of the consideration for agreeing to operate the Modena affordable housing project, or completely independent of it? Indeed, was it consideration for agreeing to operate all three affordable housing projects, resulting in a conclusion that the three projects were interrelated, perhaps inextricably so?
The petition for a writ of mandate is denied. The matter is remanded for further proceedings consistent with this opinion. Each of the parties shall bear its own costs.
Kitching, J., and Aldrich, J., concurred.
Thus, for example, in County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237 [54 Cal.Rptr.2d 628], the court considered the situation in which a plaintiff, who had been hit by a car, sued her health insurer for medical malpractice as well as other defendants allegedly liable for the accident. The codefendants brought claims for equitable indemnity against the insurer, who moved to compel arbitration of the plaintiff's action and the codefendants' cross-actions. While the plaintiff's action against the insurer was clearly arbitrable, as the insurance contract contained an arbitration clause, the codefendants' cross-actions were not. The court concluded that the codefendants could not be compelled to arbitrate because there was no preexisting relationship between the codefendants and the insured plaintiff which would have enabled the insured plaintiff to bind them when she agreed to the arbitration clause. (Id. at p. 243.) Yet, the same result could have been reached on the theory that the codefendants' cross-actions against the health insurer were not based on the contract between the insurer and the plaintiff.
Consider also the language in Crowley, supra, 158 Cal.App.4th 1061, in which the defendant insurers, faced with an equitable contribution claim from a plaintiff insurer which had indemnified the common insured, sought to compel arbitration on the basis of arbitration clauses in the defendant insurers' insurance policies. The appellate court concluded arbitration could not be compelled, because a cause of action for equitable contribution is not based on the insurance policies, but arises in equity. (Id. at p. 1064.) The court rejected the defendant insurers' argument that they were simply trying to "`stand in the shoes'" of the insured, noting that a "common theme in [those] cases is that the party seeking relief was suing on the contract itself, not a statute or some other basis outside the contract." (Id. at p. 1071.) In contrast, however, when a nonsignatory to a contract is attempting to seek relief for breach of the contract itself, that nonsignatory must be doing so by means of either a third party beneficiary argument, or a legal theory which entitles that nonsignatory to "stand in the shoes" of a party to the agreement—either by virtue of a preexisting relationship, or as an assignee or successor in interest.
