Opinion
A147334
01-30-2017
PHARMAINVEST, LLC, Plaintiff and Respondent, v. AMINOPTERIN, LLC et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-14-540584)
Defendants Aminopterin, LLC and Dr. John Zebala appeal from the order denying their motion to compel plaintiff PharmaInvest, LLC to arbitrate their dispute. We affirm.
BACKGROUND
Historical information concerning the dispute is well set forth in the exhaustive 13-page statement of decision by the Honorable Mary E. Wiss on the order denying defendants' motion to compel. Her decision merits quotation at length (with our addition of minor, nonsubstantive editorial modifications):
"This is an action by plaintiff PharmaInvest, LLC (PharmaInvest), a member of defendant Aminopterin LLC (Aminopterin) and against defendant Dr. John A. Zebala as an individual. Dr. Zebala is the Managing Director of Aminopterin and the CEO of its other member, non-party Syntrix Biosystems, Inc. (Syntrix). Aminopterin is a Delaware limited liability company formed to develop (L/D)-aminopterin (AMT) . . . for the treatment of certain autoimmune diseases. PharmaInvest and Syntrix are the only two members of Aminopterin. Aminopterin is governed by a Board of Managers. The Board consists of five directors, two appointed by each PharmaInvest and Syntrix, who then decide on a fifth neutral director.
"Between 2007 and 2010, Dr. Zebala and two principals of PharmaInvest (Peter Georgiopoulos and Jonathan Singer) discussed pooling resources to develop AMT. On March 31, 2010, PharmaInvest and Aminopterin entered into a Limited Liability Company Agreement (Agreement). The Agreement was executed by PharmaInvest. Dr. Zebala executed the Agreement in three different capacities: as President and Chief Executive Officer of Syntrix, as Managing Director of Aminopterin, and individually for purposes set forth in . . . the Agreement.
"Pursuant to the Agreement, Syntrix contributed intellectual property to Aminopterin and PharmaInvest contributed capital. By early 2014, a dispute arose between Dr. Zebala and PharmaInvest over the direction of Aminopterin and its funding by PharmaInvest. Various demands were made by both sides.
"The Agreement provides for arbitration of certain disputes. Article XVI, Sections 16.1 and 16.2 of the Agreement, entitled 'Dispute Resolution and Arbitration,' states:
" 'Section 16.1 Disputes: Any dispute, claim or controversy (a "Dispute") arising out of, in connection with or relating to this Agreement between PharmaInvest and Syntrix shall be resolved first by referring the Dispute to a senior representative of each party, as applicable, who shall meet to resolve the matter. If the senior representatives cannot resolve the disagreement after thirty (30) days of first meeting, then the Dispute shall be finally and exclusively resolved by arbitration administered by the American Arbitration Association (AAA) in accordance with its Commercial Arbitration Rules and Section 16.2 hereto.
" 'Section 16.2 Arbitration. Within fifteen (15) days after the commencement of arbitration, PharmaInvest and Syntrix shall each select one (1) person to act as arbitrator and the two (2) selected shall select a third arbitrator within seven (7) days of their appointment. If the arbitrators selected by PharmaInvest and Syntrix are unable or fail to agree upon the third arbitrator, the third arbitrator shall be selected by the AAA. The arbitration shall take place in San Francisco, California. The parties agree that the arbitration shall be conducted expeditiously; to that end, if reasonable, PharmaInvest and Syntrix intend for a final award to be issued within 120 days from the date of the filing of the written demand to arbitrate, and in no event more than 365 days from the date of the filing of the written demand to arbitrate. The final award shall be reasoned and in writing, which shall be final, conclusive and binding. . . . Except as provided in the preceding sentence, each party to the arbitration shall bear its own costs and expenses.'
"On April 10, 2014, PharmaInvest wrote a letter to Syntrix giving notice of a dispute under Section 16.1 of the Agreement. On the same day, in response to various claims and requests for information, Aminopterin wrote to PharmaInvest regarding the parties' disputes. This April 10 letter, on Aminopterin letterhead, was signed by Dr. Zebala on behalf of Aminopterin and non-party Syntrix. The letter states that '[t]his matter is between Aminopterin and PharmaInvest, not between Syntrix and PharmaInvest' and went on to say 'I [Dr. Zebala] also acknowledge the April 10, 2014 letter from PharmaInvest to Syntrix giving notice of a dispute under section 16.1 of the Agreement. This Notice is improper and not recognized. The matter is a dispute between Aminopterin and PharmaInvest as set forth above.'
"On July 16, 2014, PharmaInvest filed its complaint against Aminopterin and Dr. Zebala, which is still the operative pleading. The complaint asserts breach of contract claims against all defendants, and seeks damages as well as injunctive and declaratory relief. Dr. Zebala is sued in his individual capacity for inducing breach of contract, as well as for fraud in inducing PharmaInvest to enter into the Agreement. And, PharmaInvest seeks a declaration of its rights as to both defendants.
"Since the filing of the complaint, the parties have been embroiled in vigorous litigation. PharmaInvest points out that this Court has issued no less than 25 orders since the action was filed, including the issuance of a preliminary injunction and a denial of Dr. Zebala's motion to dissolve the preliminary injunction (in which Aminopterin joined). The parties have engaged in hard-fought discovery. By written order filed July 15, 2015, this Court scheduled the following matters:
" 'Week of August 17, 2015': Deposition of Dr. Zebala.
" 'Week of August 17, 2015': Deposition of Dee Hoeke, bookkeeper for Syntrix.
"September 3, 2015: Hearing On PharmaInvest's Motion to Amend its Complaint
"October 2, 2015: Hearing on Zebala's Motion for Judgment on the Pleadings
"November 2, 2015: Trial.
"Dr. Zebala's motion to compel arbitration was filed on August 17, 2015, the same week that his deposition and that of Syntrix's bookkeeper were to commence. Defendant Aminopterin filed a joinder in the motion on August 21, 2015. Prior to these filings, neither Dr. Zebala nor Aminopterin complied with the pre-arbitration deadlines and requirements set forth in section 16.1 of the Agreement. . . .
"Applicable Legal Standards
"As a general matter, '[a] strong public policy favors the arbitration of disputes, and doubts should be resolved in favor of deferring to arbitration proceedings.' (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.) The party opposing arbitration has the burden to establish that the arbitration provisions do not cover the dispute at issue. (Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406 ['The party opposing arbitration has the burden to show that the agreement does not apply to the dispute'].)
"Arbitration is a matter of contract. However, the policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate. (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59.) The strong policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration. (Bensara v. Marciano (2001) 92 Cal.App.4th 987, 990.)
"The right to arbitration may, however, be waived. Code of Civil Procedure section 1281.2 provides in pertinent part: 'On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner . . . .' (emphasis added).
" 'No single test defines the conduct that will constitute waiver of an arbitration right. Rather, courts look to a number of factors to determine whether waiver has occurred. (St. Agnes Medical Center v. Pacificare of California (2003) 31 Cal.4th 1187, 1195-1196 [St. Agnes].) In St. Agnes, the Supreme Court confirmed that a court may consider the following six factors in assessing a waiver claim: " ' "(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether 'the litigation machinery has been substantially invoked' and the parties 'were well into preparation of a lawsuit' before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of proceedings; (5) "whether important intervening steps [e.g., taking advantage of judicial discovery proceedings not available in arbitration] had taken place"; and (6) whether the delay "affected, misled, or prejudiced" the opposing party.' " [Citation.]' (Id. at p. 1196; see also Sobremonte v. Superior Court [(1998)] 61 Cal.App.4th [980], 982.)" (Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 354-355 [Oregel].)
"A party seeking to establish a waiver of the petitioner's right to arbitration bears a 'heavy burden of proof.' (Oregel, supra, 237 Cal.App.4th at 354 [citing St. Agnes, supra, 31 Cal.4th at p. 1195]; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) 'Generally, the determination of waiver [of the right to arbitrate] is a question of fact, and the trial court's finding, if supported by sufficient evidence, is binding on the appellate court. When, however, the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court's ruling.' (Oregel, supra, 237 Cal.App.4th at p. 354 [quoting St. Agnes, supra, 31 Cal.4th at p. 1196], emphasis added.)
"Analysis
"This Court must determine whether the arbitration provision in Section 16.1 of the Agreement covers the dispute at issue, and if it does, whether the defendants have waived any right to compel arbitration. As discussed below, the Court finds that the dispute in this case is not subject to the arbitration provision, but even if it were, both defendants have waived their right to compel arbitration. Additionally, the Court finds that the doctrines of agency, third party beneficiary, and estoppel are inapplicable to the instant case and the defendants' motion must be denied.
"PharmaInvest Did Not Agree to Arbitrate Disputes With Defendants
"There is no agreement to arbitrate between PharmaInvest and Dr. Zebala or Aminopterin and thus there is no basis to compel arbitration. The U.S. Supreme Court has emphasized that '[a]rbitration is strictly a matter of consent, and thus is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.' (Granite Rock Co. v. Int'l Bhd. of Teamsters (2010) 561 U.S. 287, 299, internal quotation marks and citations omitted; emphasis in original; see also Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 481 ['[T]here is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate and which no statute has made arbitrable.'].)
"Defendants point solely to Section 16.1 of the Agreement as their basis for compelling arbitration in this matter. Section 16.1 of the Agreement provides for the arbitration of disputes arising between PharmaInvest and Syntrix only, and does not provide for the arbitration of disputes between PharmaInvest and Dr. Zebala or Aminopterin. Section 16.1 of the Agreement states that '[a]ny dispute, claim or controversy . . . arising out of, in connection with or relating to this Agreement between PharmaInvest and Syntrix . . . shall be finally and exclusively resolved by arbitration[.]' Because the dispute in this case is one between PharmaInvest, Aminopterin, and Dr. Zebala, it is not subject to the Agreement's arbitration provision.
"That the Agreement was never intended by the parties to provide for arbitration as to disputes arising between PharmaInvest and Dr. Zebala or Aminopterin is further illustrated by the fact that Dr. Zebala signed the Agreement in his individual capacity as to certain provisions (Article XVII and Sections 6.6, 11.2 and 11.3), but did not do so with regard to Section 16.1 of the Agreement. The language of the Agreement distinguishes between those provisions that apply generally to all the parties (PharmaInvest, Dr. Zebala, Syntrix, Aminopterin) and those that apply only to specific parties, i.e., Section 16.1. Indeed, if the parties intended for Aminopterin and Dr. Zebala to be entitled to arbitration, they certainly could have explicitly provided for it in the Agreement, but they explicitly did not.
"Because there was no agreement by the parties to arbitrate the disputes at issue in this lawsuit, there is no basis for granting defendants' motion to compel arbitration. (UFCW & Employers Benefit Trust v. Sutter Health (2015) 241 Cal.App.4th 909, 919 [UFCW] ['The . . . policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate' citing Avery v. Integrated Healthcare Holdings, Inc., supra, 218 Cal.App.4th 50, 59].)
"Defendants' Agency and Third-Party Beneficiary Arguments Fail
"Dr. Zebala and Aminopterin argue that they can compel PharmaInvest to arbitrate under the doctrines of agency and third-party beneficiary, respectively. The Court disagrees.
"Dr. Zebala cannot rely on his position as an 'agent and employee of Syntrix' when he is being sued in his individual capacity for inducing breach of contract, as well as for fraud in inducing PharmaInvest to enter into the Agreement. Moreover, Dr. Zebala signed the Agreement in his individual capacity 'for the limited purposes set forth in Article XVII and Sections 6.6, 11.2 and 11.3.' He did not sign onto the arbitration provision in Section 16.1, but he did sign onto Section 17.13(a), which permits actions for injunctive relief against him to be brought in court.
"As pointed out in UCFW, agency is either actual or ostensible. For actual agency, the principal must indicate that the agent is to act for him. (UCFW, supra, 241 Cal.App.4th 909, 931, citing Edwards v. Freeman (1949) 34 Cal.2d 589, 592.) Dr. Zebala has not demonstrated that he was the agent for either Syntrix or Aminopterin such that the arbitration agreement specifically negotiated as to PharmaInvest and Syntrix should be extended to disputes between PharmaInvest and Dr. Zebala or Aminopterin. Nor have defendants established that the doctrine of ostensible agency should be invoked here. Ostensible agency may be applied where the principal 'causes a third person to believe another to be his agent who is not really employed by him.' (Civ. Code, § 2300.) The parties negotiating the LLC Agreement were sophisticated individuals and this Court has not been persuaded to apply ostensible agency to extend the arbitration agreement between Syntrix and PharmaInvest to apply to Dr. Zebala or to Aminopterin.
"Nor can Aminopterin enforce the arbitration provision against PharmaInvest as a claimed third-party beneficiary of the Agreement. Aminopterin is a direct party to the Agreement and it chose not to sign onto the arbitration provision. Contrary to Aminopterin's argument, the Agreement itself makes clear that the parties did not intend for Aminopterin to be a third-party beneficiary. The Agreement includes an express 'No Third Party Beneficiaries' clause providing that 'no other Person . . . shall have any rights, interests or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third-party beneficiary or otherwise.' The intent of the parties, including Aminopterin, is clear: disputes involving Aminopterin would not be arbitrated. (See Civ. Code, § 1636 ['A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting'].)
"In sum, there is no basis for the Court to rewrite the Agreement when the defendants specifically declined to be bound by the arbitration provision.
"Defendants Have Waived Any Right To Compel Arbitration
"Even if Dr. Zebala and Aminopterin were parties to the arbitration provision at issue (which they are not), they have waived any right to arbitration in this action.
"First, Dr. Zebala's conduct both as an individual and as Managing Director and Chairman of Aminopterin has been inconsistent with any intent to arbitrate. Dr. Zebala opposed arbitration early in this action, which was filed more than sixteen months ago. And as recently as five months ago, on June 19, 2015, Mr. Dye, counsel for Dr. Zebala, stated in open court that '[f]rankly, if [plaintiff] were to sue Syntrix, we would be in arbitration. [¶] The agreement requires any case against Syntrix, between Pharma and Syntrix, is arbitrable. [¶] We're here in this courtroom because they chose not to sue Syntrix. They made a tactical decision.'
"Second, consistent with Mr. Dye's representation in open court that this dispute is not arbitrable, both Dr. Zebala and Aminopterin have 'substantially invoked' the litigation machinery of this Court by filing dispositive motions, seeking affirmative relief, and attending at least nine hearings and conferences in this action. For instance, Dr. Zebala and Aminopterin jointly filed a motion for summary adjudication on February 13, 2015, and Dr. Zebala filed a motion for judgment on the pleadings on July 13, 2015, which was joined, in part, by Aminopterin. Defendants also asked the Court to order PharmaInvest to make capital contributions to Aminopterin, and they have requested a judicial finding that PharmaInvest breached a duty to Aminopterin. (See Mar. 13, 2015, Defs' Proposal for Ensuring Solvency of the LLC; Feb. 2, 2015 Order Granting Prelim. Inj. at 6-13 [finding PharmaInvest likely to prevail on Defendants' fiduciary duty argument].)
"Third, Dr. Zebala has engaged in extensive discovery pursuant to the Code of Civil Procedure—procedures that may not have been available in arbitration—serving more than fifty document requests, conducting the depositions of key PharmaInvest witnesses, and seeking the production of more than 35,000 pages of PharmaInvest's documents. Aminopterin also participated in discovery, attended depositions, and filed at least one opposition to PharmaInvest's Motion to Compel Discovery, thereby benefitting from the use of the discovery processes along with Dr. Zebala.
"Finally, defendants' delay in seeking arbitration has prejudiced the opposing party, plaintiff PharmaInvest. A plaintiff suffers prejudice as a result of a defendant's conduct in failing to timely seek arbitration where, as here, the 'petitioning party's conduct substantially undermined the important public policy of arbitration as a speedy and relatively inexpensive means of dispute resolution or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration.' (Oregel, supra, 237 Cal.App.4th at p. 360, internal brackets and quotation marks omitted.)
"The arbitration provision contemplated resolution of any disputes within 120 days or (at the most) 365 days, both of which have long since passed. Instead of arbitration, the parties have taken advantage of the discovery statutes of this state. Dr. Zebala has not only responded to the discovery propounded against him, but also benefitted by utilizing those same discovery processes against PharmaInvest. The parties even stipulated to this Court adjudicating any discovery disputes over subpoenas issued by PharmaInvest to Syntrix. Thus, both Dr. Zebala and Aminopterin have benefitted litigating without arbitration, and have clearly submitted to the jurisdiction of this Court, all of which would prejudice PharmaInvest were arbitration to be ordered now. Moreover, PharmaInvest continues to be the only source of revenue to Aminopterin and continues to provide it with capital contributions. PharmaInvest has consistently voiced objection that its capital contributions are used to pay attorney fees for both Dr. Zebala and Aminopterin, as PharmaInvest is thus in the position of financing all sides of this litigation. To start over in arbitration at this point would further prejudice PharmaInvest.
"Dr. Zebala's Argument that the Proposed Amended Complaint Justified His Delay in Moving to Compel Arbitration Fails
"Prior to the filing of Dr. Zebala's motion to compel arbitration, PharmaInvest had moved to amend its complaint and had attached the proposed First Amended Complaint ('FAC') to its motion to amend. In his motion to compel arbitration, Dr. Zebala argued that the proposed FAC was the main impetus for moving to arbitrate now. In his reply, Dr. Zebala continues to assert that PharmaInvest's proposed FAC is a 'game-changer' that supports compelling arbitration at this late stage.
"But PharmaInvest's proposed FAC is not yet on file and, in any event, it does not change the nature of this action against Dr. Zebala and Aminopterin. Like the original complaint, PharmaInvest's proposed FAC asserts claims for: damages, injunctive relief, and declaratory relief against Aminopterin and Dr. Zebala, and does not name Syntrix as a party. As in the original complaint, PharmaInvest's proposed FAC alleges claims for: (1) breach of contract against Aminopterin and Dr. Zebala, (2) inducing breach of contract against Dr. Zebala, (3) fraud against Dr. Zebala, and (4) declaratory relief against Aminopterin and Dr. Zebala. While PharmaInvest's proposed FAC fleshes out the claims asserted against Aminopterin and Zebala, it also alleges two new derivative claims on behalf of Aminopterin in the alternative, and a new claim for breach of fiduciary duty against Dr. Zebala. Those aspects of the proposed FAC are directed at issues defendants themselves have raised during this litigation. Because PharmaInvest's original complaint, motion practice, case management submissions, and court arguments have already addressed the allegations in PharmaInvest's proposed FAC, defendants cannot credibly argue that they were unaware of these allegations or that they are a 'game changer'.
"Defendants Are Estopped from Seeking Arbitration Under the Agreement
"Based on defendants' repeated prior assertions that the issues in this action are not arbitrable, the Court finds that defendants are estopped from invoking arbitration under Section 16.1 now. Before PharmaInvest filed this lawsuit, defendants contended that the 'matter is between Aminopterin and PharmaInvest, not between Syntrix and PharmaInvest.' Thus it would be 'improper' to invoke the arbitration provision in Section 16.1.
"Defendants cannot now argue that the cause should be sent to arbitration. Defendants are bound by their repeated admissions that this case is not arbitrable—admissions that are grounded in the Agreement. (See Kuroda v. SPJS Holdings, LLC (Del. Ch. Nov. 30, 2010) 2010 WL 4880659 at *4 [denying motion to compel arbitration because party previously argued that he was not a party to the contract, and he 'cannot have it both ways']; Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics (1998) 61 Cal.App.4th 672, 679 [party was estopped from contradicting prior statements in open court about arbitrability].) Defendants have not cited any case where a party refused arbitration before litigation, and then was allowed to compel arbitration after more than a year in court.
"Defendants' argument that PharmaInvest is equitably estopped from avoiding arbitration fails. There is nothing inequitable about PharmaInvest bringing its claims in this Court. (See Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 235 ['[T]he linchpin for equitable estoppel is equity—fairness', internal quotation marks omitted].) Defendants themselves have recognized that any claims against them are excluded from the arbitration provision. (See Exhibit to 9/1/15 Decl. of Nicholas S. Goldberg, Ex. B 4/10/2014 letter signed by Dr. Zebala as Managing Director and Chairman of Aminopterin, and as President of Syntrix.) And, Section 17.3 of the Agreement specifically authorizes PharmaInvest to bring a lawsuit for injunctive relief in court. Nor can defendants argue that PharmaInvest's claims are 'inherently inseparable' or 'inextricably intertwined' with claims against Syntrix. Dr. Zebala's counsel has argued that 'Pharma has never asserted any material breach or default by Syntrix of any provision of the Agreement,' and 'Pharma's Complaint does not identify any breach by Syntrix.'
"Aminopterin asserts that PharmaInvest's claims are inextricably intertwined with the LLC Agreement. PharmaInvest is a member of Aminopterin and asserts claims against Aminopterin. PharmaInvest also asserts claims against Dr. Zebala for inducing breach of contract and for fraud. PharmaInvest's agreement to arbitrate claims with Syntrix is part of the LLC Agreement. However, that fact alone does not establish that the claims against Dr. Zebala and Aminopterin are 'inextricably intertwined' with any claims PharmaInvest may have against Syntrix as no such claims have been asserted.
" 'In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him.' (UFCW, supra, 241 Cal.App.4th at 928, citing Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713.) And, when the causes of action against the nonsignatory are ' "intimately founded in and intertwined" with the underlying contract obligations,' a party may be equitably estopped from repudiating the arbitration clause contained in that agreement. (UFCW, supra, at p. 929, citing JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) PharmaInvest has not sought arbitration with Syntrix nor brought any causes of action to enforce any rights against Syntrix. Thus, defendants fail to demonstrate how any speculative contractual disputes between PharmaInvest and Syntrix are 'inextricably intertwined' with PharmaInvest's claims against Dr. Zebala and Aminopterin in this case. While some of PharmaInvest's claims arise out of the LLC Agreement (for instance, PharmaInvest asserts that Dr. Zebala breached the Agreement by instigating improper capital calls, or that Dr. Zebala made unauthorized withdrawals from Aminopterin operating account) other claims by PharmaInvest do not (for instance, that Dr. Zebala committed fraud by inducing PharmaInvest to invest in the development of L/D aminopterin to which Dr. Zebala held the patent). But the claims as framed do not assert wrongdoing by Syntrix. Thus, PharmaInvest's claims are not 'inextricably intertwined' with unasserted claims against Syntrix. PharmaInvest has not repudiated the arbitration clause with Syntrix. It has not sued Syntrix, but instead seeks to enforce its rights as to Aminopterin and Dr. Zebala.
"The doctrine of equitable estoppel is designed to prevent a party from playing 'fast and loose' with the commitment to arbitrate. (UFCW, supra, 241 Cal.App.4th at 929, citing Metalclad, supra, at p. 1714.) Here, sophisticated parties reached an agreement which requires that PharmaInvest and Syntrix arbitrate their disputes. PharmaInvest did not agree to arbitrate with defendants and this Court does not find that PharmaInvest's causes of action against Dr. Zebala and Aminopterin are inextricably intertwined with the arbitration clause as to Syntrix contained in the Agreement."
And so Judge Wiss concluded: "For all of the foregoing reasons, Dr. Zebala's Motion to Compel Arbitration, which Aminopterin has joined, is denied."
Zebala and Aminopterin filed timely notices of appeal from the order, which is appealable. (Code Civ. Proc., § 1294, subd. (a).)
DISCUSSION
Aminopterin's and Dr. Zebala's Contentions
We quoted virtually the entirety of Judge Wiss's order to demonstrate its comprehensive scope. The order rests on the following grounds: (1) the lawsuit by PharmaInvest against Aminopterin and Dr. Zebala is not covered by the arbitration provision; (2) Aminopterin and Dr. Zebala cannot make good this deficiency by bringing PharmaInvest within the arbitration provision with the theories that (a) PharmaInvest sued Dr. Zebala as Syntrix's agent, and (b) Aminopterin is the third-party beneficiary of the PharmaInvest-Syntrix agreement and arbitration provision; (3) even if Aminopterin and Dr. Zebala were able to enforce the arbitration provision, they waived their right to compel arbitration; (4) even if Aminopterin and Dr. Zebala were able to enforce the arbitration provision, they are estopped from asserting a right to compel arbitration, while (5) PharmaInvest is not equitably estopped from resisting arbitration; and (6) even if Aminopterin and Dr. Zebala were able to enforce the arbitration provision, they were not justified in delaying their demand for arbitration until confronted with the impending "game-changer" of PharmaInvest's amended complaint.
Aminopterin and Dr. Zebala, each represented by the same counsel who acted for them before Judge Wiss, have filed separate briefs. The two captions in Aminopterin's brief are (1) "Pharma is equitably estopped from repudiating the arbitration clause of the LLC agreement in its dispute with the LLC", and (2) "Aminopterin did not waive its right to arbitration based on its defense of the litigation brought by Pharma" because (a) "the vast majority of the LLC's actions in the litigation were taken during the preliminary injunction proceedings, and thus were not inconsistent with the right to arbitrate," and (b) the amended complaint "includes new claims on behalf of the LLC that are subject to arbitration and could not have been waived."
Dr. Zebala contends that: (1) as Syntrix's agent, he "may compel arbitration of Pharma's claims under the LLC agreement"; while (2) "Pharma is [equitably] estopped to deny arbitration of those claims"; (3) "the trial court erred in finding a waiver of arbitration [by him] and estoppel [against him] to invoke arbitration"; and (4) "If a waiver had occurred, then Pharma's Proposed First Amended Complaint revives the right to compel arbitration."
In support of his third contention, Dr. Zebala advances the following specific arguments: (1) "litigation activity and delay in connection with the preliminary injunction proceedings cannot support a finding of waiver or prejudice"; (2) "appellants did not unreasonably delay the motion to compel arbitration"; (3) "there is no substantial evidence of prejudice to support a finding of waiver"; (4) "motions for summary adjudication and judgment on the pleadings that were never heard and that have been mooted by the FAC do not support a finding of waiver or prejudice"; (5) "discovery activity in this case does not support a finding of waiver or prejudice"; (6) "efforts to reach a business solution to the dispute do not support a finding of waiver"; (7) "no evidence supports that Dr. Zebala ever refused to arbitrate, opposed arbitration or asserted that the substantive claims against him are not arbitrable"; (8) "statements by Dr. Zebala and his counsel do not support waiver of arbitration or estoppels to invoke the arbitration agreement"; and (9) "the trial court erred by deciding questions delegated to the arbitrator."
It is clear from the foregoing that neither Aminopterin nor Dr. Zebala has elected to challenge the first of Judge Wiss's conclusions, that they are not signatory parties to the arbitration provision in the PharmaInvest-Syntrix agreement. Dr. Zebala renews his claim that he is in effect entitled to stand in Syntrix's shoes and insist on Syntrix's contractual right to compel arbitration, because at all relevant times he has been the actual agent of Syntrix. And both he and Aminopterin contend that PharmaInvest should be equitably estopped to contest their ability to invoke the arbitration remedy of the PharmaInvest-Syntrix agreement. Yet these are only preliminary issues. Even if Dr. Zebala and Aminopterin were to prevail on them—issues we do not decide—they would still have overturn Judge Wiss's waiver finding to secure reversal. Put otherwise, if Judge Wiss's finding of waiver is sustained, no other findings and issues have to be addressed. (See Brewer v. Simpson (1960) 53 Cal.2d 567, 584; Alpine Ins. Co. v. Planchon (1999) 72 Cal.App.4th 1316, 1320.) And sustained it is.
Judge Wiss's Finding of Waiver Is Sustained
"Generally, the determination of waiver is a question of fact, and the trial court's finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.] 'When, however, the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court's ruling.' [Citation.] In the case before us, the essential facts are not disputed." (St. Agnes, supra, 31 Cal.4th 1187, 1196.) Moreover, a party who resists arbitration on the ground of waiver "bears a heavy burden of proof." (Id. at p. 1195.)
But if Aminopterin and Dr. Zebala hope to get de novo review by this court, they will be disappointed. The "essential facts" may not be in dispute, in the sense that no one doubts that party X did or did not do act Y on date Z. Nevertheless, even if no difference of opinion can attend such events or nonoccurrences, the "essential facts" may still give rise to conflicting interpretations or conclusions. Thus, it may be uncontroverted that Dr. Zebala did not file his motion to compel arbitration until August 17, 2015, but Judge Wiss's additional conclusion that he (and Aminopterin) was a "sophisticated" businessman lends an entire dimension of meaning to what he may have done or not done. This is even more true with respect to the matters upon which Judge Wiss relied as a percipient witness. Accordingly, where conflicting inferences may be drawn, the issue is reduced to whether Judge Wiss's finding of waiver is supported by substantial evidence. (See Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211; 9 Witkin, Cal. Proc. (5th ed. 2008) Appeal, § 376, p. 434.)
Moreover, the "heavy burden" of demonstrating waiver is the burden of proof before the trial court, not the reviewing court. " 'Although the burden of proof is heavy on the party seeking to establish waiver, which should not lightly be inferred in light of public policy favoring arbitration, a determination by a trial court that the right to compel arbitration has been waived ordinarily involves a question of fact, which is binding on the appellate court if supported by substantial evidence. The appellate court may not reverse the trial court's finding of waiver unless the record as a matter of law compels finding nonwaiver.' " (Burton v. Cruise (2010) 190 Cal.App.4th 939, 946 (Burton), quoting Davis v. Continental Airlines, Inc., supra, at p. 211.)
A final preliminary observation is that "waiver" in this context has a distinct meaning. "Although the statute [Code Civ. Proc., § 1281.2, subd. (a)] speaks in terms of 'waiver,' the term is used ' "as a shorthand statement for the conclusion that a contractual right to arbitration has been lost." ' (St. Agnes, supra, 31 Cal.4th at p. 1195, fn. 4.) This does not require a voluntary relinquishment of a known right; to the contrary, a party may be said to have 'waived' its right to arbitrate by an untimely demand, even without intending to give up the remedy. In this context, waiver is more like a forfeiture arising from the nonperformance of a required act." (Burton, supra, 190 Cal.App.4th 939, 944.)
One basis for sustaining the waiver finding is immediately apparent. After all the effort expended on getting themselves entitled to invoke the arbitration remedy, Aminopterin and Dr. Zebala pay no attention to its attendant limitations, specifically, its time frames. Both Aminopterin and Dr. Zebala take various paths to demonstrate that the litigation is founded on performance, or nonperformance of the LLC Agreement, yet they never invoked the remedy provided in that very agreement. The 30-day deadline for alerting the American Arbitration Association is long expired. That was the trigger for an arbitration that was to be conducted "expeditiously," "and in no event more than 365 days from the date of the filing of the written demand to arbitrate."
Aminopterin argues that "the vast majority of the LLC's actions in the litigation were taken during the preliminary injunction proceedings, and thus were not inconsistent with the right to arbitrate" because "Section 17.13(b) of the LLC Agreement sets forth that the parties have the right to seek injunctive relief in court, and that such action does not constitute a waiver of arbitration." Both Aminopterin and Dr. Zebala in their respective answers cited the arbitration provision as an affirmative defense, yet neither made any move to invoke that remedy for more than a year. Yet Aminopterin advances no reason why it could not have at least sent its demand to the American Arbitration Association. Nothing in the plain language of section 17.13 precludes seeking arbitration.
Similarly, Dr. Zebala insists that "for months" PharmaInvest forced him "to litigate a non-arbitrable preliminary injunction motion that sought in part to bar Syntrix from exercising its . . . rights under the LLC Agreement." But he presents no reason why he did not try to short-circuit that process by making the same argument he later did to Judge Wiss, namely, that he was Syntrix's agent and therefore authorized to demand that the entire matter be arbitrated because PharmaInvest's claims are all "based on the LLC Agreement." Indeed, Dr. Zebala told Judge Wiss in his motion to compel that "The LLC Agreement that is at the center of this dispute contains a broad arbitration provision" that "extends to and covers all of the claims in this action." (Italics added.)
And said it again: "The arbitration provision in the LLC Agreement is clearly broad enough to cover all of the contract and tort claims contained in the original complaint," together with a reminder that "any '[d]oubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration.' United Transp. Union, AFL/CIO v. Southern Calif. Rapid Transit Dist., 7 Cal.App.4th 804, 808 (1992)." (Italics added.)
And then again to Judge Wiss in open court, as evidenced by the repeated and emphatic statements of Dr. Zebala's counsel to Judge Wiss to the effect that "All these claims are subject to arbitration because all of them, every single one of them arises, out the LLC [Agreement]" "[N]one of the substantive claims would stay here." (Italics added.)
Meanwhile, Dr. Zebala and Aminopterin, these "sophisticated parties," have virtually no basis to claim justifiable ignorance. Dr. Zebala is described in the LLC Agreement as "President & Chief Executive Officer" of Syntrix. Various documents in the record do not establish the precise nature of his relationship with Syntrix beyond his stating that he is its founder, its president, and its sole shareholder, and that, including himself, Syntrix has only six employees. He was obviously no faceless corporate functionary, but a serious player, very possibly the only player who mattered. There is no basis for him to claim the idea that he was Syntrix's agent only emerged from the mists more than a year after PharmaInvest commenced this action. His relationship to Syntrix did not change in the ensuing months of what Judge Weiss called "vigorous litigation." So, when in his motion to compel on August 17, 2015, he claimed that he was "entitled to enforce the arbitration provisions as an agent and employee of Syntrix," he did so on the basis of the same information he had when PharmaInvest filed suit in July of the preceding year. Thus, there is no reason he could not have acted sooner to have the dispute arbitrated.
The same is true for Aminopterin's claim, made in its joinder of Dr. Zebala's motion to compel, that it "is a third-party beneficiary of the LLC Agreement, and it therefore may invoke the arbitration clause of the LLC Agreement." Aminopterin pointed to no information that revealed that status for the first time just at the same time Dr. Zebala made his motion to compel arbitration. So, there was no justification for not moving sooner.
In sum, the basis for seeking arbitration was known to Dr. Zebala, and to Aminopterin, in July 2014, when PharmaInvest filed its complaint, 13 months before they moved for arbitration. As we have accepted, for purposes of this appeal, that Dr. Zebala and Aminopterin could speak and act for the parties to the LLC Agreement and its arbitration provision, yet neither did so for 13 months. Moreover, neither Dr. Zebala nor Aminopterin will be heard to argue that their authority to invoke the arbitration remedy existed only from the time they moved to compel arbitration. In accordance with the preceding analysis, their authority must be backdated to the beginning of this lawsuit. Delay of four to six months in seeking arbitration has repeatedly been found to be unreasonable and unjustified. (See Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 446 and decisions cited.)
The claim of Dr. Zebala and Aminopterin that this period was devoted to "the preliminary injunction proceedings" does nothing to refute Judge Wiss's reliance on actions not tied to that equitable remedy: "For instance, Dr. Zebala and Aminopterin jointly filed a motion for summary adjudication on February 13, 2015, and Dr. Zebala filed a motion for judgment on the pleadings on July 13, 2015, which was joined, in part, by Aminopterin. Defendants also asked the Court to order PharmaInvest to make capital contributions to Aminopterin, and they have requested a judicial finding that PharmaInvest breached a duty to Aminopterin." Additionally, as Dr. Zebala states in his opening brief: "Shortly [after entering 'its initial preliminary injunction order on February 2, 2015'], the court vacated the May 2015 trial date and stayed discovery," and "held several case management conferences in efforts to assist the parties in reaching a business solution."
A new trial date was set for November, the same month Judge Wiss filed her decision. Notwithstanding Dr. Zebala's claim that "this case is still in its infancy," this is how Judge Wiss envisaged the scope of the impending trial: "The complaint asserts breach of contract claims against all defendants, and seeks damages as well as injunctive and declaratory relief. Dr. Zebala is sued in his individual capacity for inducing breach of contract, as well as for fraud in inducing PharmaInvest to enter into the Agreement. And, PharmaInvest seeks a declaration of its rights as to both defendants." The amount and scope of discovery needed to try these matters belies Dr. Zebala's argument that discovery was confined to "the non-arbitable preliminary injunction proceedings." The picture presented does not resemble resolution of a conflict that is "still in its infancy."
Dr. Zebala asserts that the time given to reaching "a business solution to the dispute" should not be counted in calculating the time of delay. He further argues that there is not evidence that he "ever refused to arbitrate, opposed arbitration or asserted that the substantive claims against him are not arbitrable." But the notion of reaching a global settlement hardly seems compatible with saying the litigation was intentionally designed by PharmaInvest to exclude Syntrix, and involved nothing more than PharmaInvest trying to secure injunctive relief. Moreover, in now stepping into Syntrix's shoes and asserting its right to seek arbitration, Dr. Zebala is obliquely conceding that the great majority of claims made by PharmaInvest are arbitrable, which only underscores how much time elapsed before it occurred to him and Aminopterin to seek the contractual remedy. The concession becomes explicit in his reply brief: "Pharma's claims unquestionably derive from and are intertwined with the LLC Agreement. That makes them arbitrable."
These actions constitute substantial evidence for Judge Wiss's conclusion that "both Dr. Zebala and Aminopterin have 'substantially invoked' the litigation machinery of this Court by filing dispositive motions, seeking affirmative relief, and attending at least nine hearings and conferences in this action."
Dr. Zebala attempts to undermine this determination by noting that neither of the " 'dispositive motions' " were ever ruled upon, and none of the orders made by Judge Wiss "reached the merits." This effort is misdirected. The test, as we noted, is " ' " 'whether "the litigation machinery has been substantially invoked" ' " ' " (Oregel, supra, 237 Cal.App.4th 342, 355), not whether a conclusion on the merits was obtained. And we certainly do not agree with Dr. Zebala's confining the "invoked" factor to the party who commenced the litigation.
Our Supreme Court in St. Agnes, supra, 31 Cal.4th 1187 recognized that "the critical factor in demonstrating prejudice is whether the party opposing arbitration has been substantially deprived of the advantages of arbitration . . . . 'Rather, courts assess prejudice with the recognition that California's arbitration statutes reflect " 'a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution' " and are intended " 'to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.' " ' " (Burton, supra, 190 Cal.App.4th 939, 948.)
It was not until November 20, 2015 that Judge Wiss filed her order denying the motion to compel arbitration. The passage of more than 17 months from the filing of PharmaInvest's complaint in July 2014 clearly stripped arbitration of its intended benefit as an expeditious remedy. During that period both Dr. Zebala and Aminopterin were clearly, and exclusively, committed to battling it out with PharmaInvest in Judge Wiss's courtroom. That approach was not only plainly " ' " 'inconsistent with the right to arbitrate,' " ' " it also showed " ' " 'the parties "were well into preparation" ' " ' " and had taken " ' " ' "important intervening steps" ' " ' " (Oregel, supra, 237 Cal.App.4th 342, 355) in the judicial arena. (See Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1042 [" 'the court views the litigation as a whole in determining whether the parties' conduct is inconsistent with a desire to arbitrate.' "].)
As already noted, mental state is largely irrelevant to the issue of waiver, and any actual intent by Dr. Zebala or Aminopterin need not be demonstrated. (Burton, supra, 190 Cal.App.4th 939, 944.) Accordingly, the absence of evidence of their intent to forego arbitration does not excuse their "failure to satisfy the contractual requirement of making a timely demand for arbitration." (Platt Pacific, Inc. v. Andelson, (1993) 6 Cal.4th 307, 314.)
We also reject Dr. Zebala's contention that neither Judge Wiss nor this court can base a decision on the timelines of sections 16.1and 16.2 because that would intrude upon "the arbitrator's jurisdiction to decide questions about whether Pharma's claims are arbitrable." This was never identified or argued as an issue to Judge Wiss. It thus was not preserved for review. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 184-185, fn. 1.)
As a reviewing court, " 'we may reverse the trial court's waiver finding only if the record establishes a lack of waiver as a matter of law.' " (Bower v. Inter-Con Security Systems, Inc., supra, 232 Cal.App.4th 1035, 1043.) The record here allows no such determination, a determination we make regardless of whether our review is de novo or looking for substantial evidence.
Finally on the issue of waiver, both Aminopterin and Dr. Zebala argued that even if waiver were to apply to the original complaint, it cannot apply to the proposed amended complaint. As Dr. Zebala puts it, the "proposed first amended complaint revives the right to compel arbitration," an argument primarily based on the two cases emphasized by Dr. Zebala's counsel at oral argument: Keating v. Superior Court (1982) 31 Cal.3d 584 (Keating), disapproved on other grounds, Southland Corp. v. Keating (1984) 465 U.S. 1 and Collado v. J & G Transport (11th Cir. 2016) 820 F.3d 1256 (Collado).
As indicated above, Judge Wiss noted that the first amended complaint had not been filed, which could end the issue here. (See California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421, 442.) But were we to ignore the issue, and the first amended complaint be allowed on remand, from all indications it would only lead to another petition below seeking arbitration—and more delay. Beyond that, counsel for Dr. Zebala strongly advocates that we address the waiver issue in the context of the first amended complaint. And so we do—and conclude that, assuming a first amended complaint is filed in the form as proposed, waiver would apply to it as well. Judge Wiss's statement of decision made clear why—and why both Keating and Collado are distinguishable.
Keating involved four franchisees who filed included complaints against Southland. (Keating, supra, 31 Cal.3d 584, 591). Plaintiffs moved to consolidate their individual cases, the effect of which was, in the words of the Supreme Court, "considerably expanded the scope of their pleadings, raising several new causes of action, injecting new factual elements, and refocusing the direction of their claims." (Id. at p. 607.) Southland moved to compel arbitration, and the trial court agreed, finding that Southland had not waived its right to compel arbitration. (Id. at p. 592.)
The California Supreme Court affirmed, with the following holding: "Moreover, assuming a waiver had occurred as to the charging allegations in the original complaints, such waiver would not extend to issues newly raised. [Citation.] In seeking coordination and amendment of their complaints, franchisees considerably expanded the scope of their pleadings, raising several new causes of action, injecting new factual elements, and refocusing the direction of their claims. We do not suggest that an amendment to a complaint will, per se, nullify a previous, effective waiver of arbitration in every case. Here, however, franchisees directed a newly concerted attack, evidenced by the filing of amended complaints and the motion to coordinate. This sufficiently changed the proceedings, when viewed in their entirety, to permit the trial court to find a lack of waiver of the right to arbitrate the closely interrelated and interdependent claims." (Keating, supra, 31 Cal 3d 584, 607.)
Keating has no applicability here. Neither does Collado.
Collado, a per curiam opinion, began with Collado's collective action under the Fair Labor Standards Act, alleging that defendant J & G Transport failed to pay its drivers for overtime. Collado then amended his complaint to add state law claims for breach of contract and quantum meruit. J & G moved to compel arbitration. The district court denied it, on the basis that the addition of the state law claims had not "unexpectedly changed the scope or theory of the litigation." (Collado, supra, 820 F.3d 1256, 1259.) The Eleventh Circuit reversed, agreeing with J & G's argument that the new state law claims "unexpectedly changed the scope or theory of the litigation." (Ibid.) So, the court held, "[w]aiver of the right to arbitrate a federal claim does not extend to later asserted state claims. Some cases speak of revival of a waived right to arbitrate. [Citation]. In these circumstances, however, it is more accurate to say that there was never a waiver of the right to arbitrate the state claims in the first place." (Id. at p. 1260.)
Here, by contrast, Judge Wiss—who, it must be recalled, lived with this case for a long time—expressly found that the proposed amended complaint "does not change the nature of this action against Dr. Zebala and Aminopterin." And she went on to explain why: "Like the original complaint, PharmaInvest's proposed FAC asserts claims for: damages, injunctive relief, and declaratory relief against Aminopterin and Dr. Zebala, and does not name Syntrix as a party. As in the original complaint, PharmaInvest's proposed FAC alleges claims for: (1) breach of contract against Aminopterin and Dr. Zebala, (2) inducing breach of contract against Dr. Zebala, (3) fraud against Dr. Zebala, and (4) declaratory relief against Aminopterin and Dr. Zebala. While PharmaInvest's proposed FAC fleshes out the claims asserted against Aminopterin and Zebala, it also alleges two new derivative claims on behalf of Aminopterin in the alternative, and a new claim for breach of fiduciary duty against Dr. Zebala. Those aspects of the proposed FAC are directed at issues defendants themselves have raised during this litigation. Because PharmaInvest's original complaint, motion practice, case management submissions, and court arguments have already addressed the allegations in PharmaInvest's proposed FAC, defendants cannot credibly argue that they were unaware of these allegations or that they are a 'game-changer.' "
That finding by Judge Wiss is supported by substantial evidence (Keating, supra, 31 Cal.3d 584, 608 ["Our function is to determine whether the trial court's finding . . . is supported by substantial evidence."]). And so, we conclude, Judge Wiss's finding of waiver would extend to a first amended complaint in the form proposed. This amendment is, as Keating itself described, one of those amendments that will not "nullify a previous, effective waiver of arbitration." (Id. at p. 607.)
PharmaInvest believes these appeals were so lacking in merit that they warrant imposition of sanctions. We reject this request because it is not in the proper form. (See Cal. Rules of Court, rule 8.276(b).)
The order is affirmed.
/s/_________
Richman, J. We concur: /s/_________
Kline, P.J. /s/_________
Miller, J.