Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Appeal from an order of the Superior Court of Orange County, Gregory Munoz, Judge. Reversed. Super. Ct. No. 07CC03532
Peel Brimley and Norman H. Kirshman for Defendants and Appellants North American Health Care, Inc., John L. Sorenson, and David E. Sorenson.
Kevin E. Monson for Plaintiff and Respondent.
FYBEL, J.
Introduction
Plaintiff sued a number of individual and corporate defendants to recover employment bonuses he claimed were due to him. Defendants were alleged in the complaint to be the alter egos of one another. Plaintiff and one of the corporate defendants had signed an employment agreement containing an arbitration provision, and the corporate defendants filed a petition to compel arbitration. Plaintiff dismissed from the lawsuit the corporate defendant that had signed the agreement containing the arbitration provision, and the trial court denied the petition to compel arbitration since there were no longer any signatory defendants in the case.
We reverse. Just as a plaintiff may not avoid arbitration by suing nonsignatory defendants for claims based on the same facts as claims asserted against a signatory defendant, a plaintiff may not avoid arbitration by dismissing the signatory defendant from the lawsuit when the nonsignatory defendants are alleged to be the alter egos of the signatory defendant.
Statement of Facts
On March 6, 2007, plaintiff Steven Draeger filed a complaint for fraud, violation of Business and Professions Code section 17000 et seq., breach of an oral agreement, and equitable conversion against defendants North American Health Care, Inc. (North American), Broadway by the Sea (Broadway), Hacienda C.H., Inc. (Hacienda), John L. Sorensen, David E. Sorensen (collectively referred to as defendants), and Tim Paulsen. The complaint alleged: there was a unity of ownership and interest between and among defendants; defendants’ money and assets had been commingled; the formalities of corporate existence and maintenance had been ignored vis-à-vis North American, Broadway, and Hacienda; and maintaining the fiction of corporate form for North American, Broadway, or Hacienda “would result in fraud and injustice.”
The gist of each of Draeger’s causes of action was that he accepted a job with defendants as a facility administrator based on a verbal representation by Paulsen that the administrators received year-end bonuses of 8 percent of the net profit of their assigned facilities. Draeger alleged this was not true, and he was not paid year-end bonuses for 2004, 2005, and 2006, resulting in damages in the amount of $43,655.68.
North American, Broadway, and Hacienda answered the complaint on April 13, 2007; one of the affirmative defenses was that Draeger’s “exclusive remedy is governed by the Alternative Dispute Resolution Agreement dated September 3, 2003.”
On our own motion, we augment the record on appeal with the complaint, filed March 6, 2007, and the answer, filed April 13, 2007, in Draeger v. North American Health Care, Inc., Orange County Superior Court, No. 07CC03532. (Cal. Rules of Court, rule 8.155(a)(1)(A).)
On June 5, 2007, North American, Broadway, and Hacienda filed a petition to compel arbitration, arguing Draeger was an employee of Broadway, and had executed an alternative dispute resolution agreement (the agreement) reading in relevant part as follows: “Broadway by the Sea (‘Company’) and Employee agree to alternative dispute resolution of all employment disputes that Company may have against Employee or Employee may have against Company, its shareholders, directors, officers, managers, employees or agents, except as provided otherwise herein.” The claims covered by the agreement include “claims for wages or other compensation due, . . . claims for breach of any contract or covenant (express or implied), claims for . . . any tort,” and claims for violation of any state law.
The agreement provides for a progressive alternative dispute resolution process, involving written notification of the dispute, mediation, and arbitration with Judicial Arbitration and Mediation Services (JAMS), using JAMS’s employment arbitration rules and procedures.
On July 3, 2007, Draeger dismissed Broadway and Hacienda from the lawsuit without prejudice. On the same day, Draeger filed his opposition to the petition to compel arbitration, arguing there was no arbitration agreement between North American and Draeger.
The trial court denied the petition to compel arbitration: “North American Health Care was not a party to the arbitration agreement and therefore, cannot compel arbitration.” North American, John Sorensen, and David Sorensen timely appealed.
John Sorenson and David Sorensen did not file a petition to compel arbitration; the petition was filed by North American, Hacienda, and Broadway. Because they have not been aggrieved by the appealed-from order, John Sorenson and David Sorensen are not proper parties to this appeal. We therefore dismiss the appeal as to them.
Discussion
We review the order denying the petition to compel arbitration de novo. (Titolo v. Cano (2007) 157 Cal.App.4th 310, 316.)
California favors the resolution of disputes through the arbitration process, and any doubt as to the meaning of an arbitration agreement is resolved in favor of arbitrating the dispute. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9; Titolo v. Cano, supra, 157 Cal.App.4th at p. 317.) However, no dispute may be ordered to arbitration unless it is within the scope of the parties’ written arbitration agreement. (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744; Titolo v. Cano, supra, 157 Cal.App.4th at p. 317.) Subject to limited exceptions, only parties to an arbitration agreement may enforce it. (Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763.)
One of those exceptions permits a nonparty to the arbitration agreement sued as an alter ego of a signatory to the agreement to enforce the agreement. In Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1280 (Rowe), the plaintiff and the corporate defendant entered a settlement agreement containing an arbitration clause. After the corporate defendant failed to make a payment under the settlement agreement, the plaintiff sued it and two of its officers for breach of contract, and violation of the Corporations Code. (Rowe, supra, 153 Cal.App.4th at pp. 1280-1281.) Each of the causes of action was based on the corporate defendant’s failure to make the scheduled settlement payment. (Ibid.) In the first cause of action, for breach of contract, the individual defendants were sued based on an alter ego theory; the plaintiff alleged that as of the time the corporate defendant signed the settlement agreement, it had no separate corporate existence and its organization was solely intended to assist the individual defendants in avoiding their own contractual obligations to the plaintiff. (Ibid.) The trial court denied a motion to compel arbitration filed by all three defendants. (Id. at p. 1281.) The trial court determined the plaintiff could not be forced to arbitrate his claims against the individual defendants, who were not parties to the agreement containing the arbitration provision, and enforcing the arbitration provision with regard to the claims asserted against the corporate defendant could lead to “conflicting rulings on common issues of law and fact.” (Id. at pp. 1281-1282.)
Neither party addressed Rowe in their appellate briefs. We invited the parties to submit supplemental letter briefs addressing the case, and they did so.
The appellate court reversed the order denying the motion to compel arbitration and held the arbitration provision was enforceable (Rowe, supra, 153 Cal.App.4th at p. 1283), and applied to all claims to recover the money due under the settlement agreement, “whether the legal theory is breach of contract, tort, or violation of a statute” (id. at p. 1286, fn. 4). The appellate court also held the plaintiff was compelled to arbitrate the cause of action for breach of contract against the individual defendants because he sued them as the corporate defendant’s alter egos: “[The plaintiff] does not refute the law permitting a nonsignatory to compel arbitration if sued as a signatory’s agent. Nor does he provide any persuasive reason why a nonsignatory should be precluded from compelling arbitration if sued as a signatory’s alter ego. Indeed, while an agent is one who acts on behalf of a corporation, an alter ego is one who, effectively, is the corporation. By suing [the individual defendants] for breach of the Agreement on the ground that they are [the corporate defendant]’s alter egos, and even alleging in the complaint that [the individual defendants] entered into the Agreement, [the individual defendants] are ‘entitled to the benefit of the arbitration provisions.’ [Citation.]” (Id. at p. 1285.)
In this case, North American is not a party to the agreement, but Broadway and Hacienda are. Draeger alleged defendants are alter egos of each other. (See Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285 [alter ego allegation requires proof of unity of interest such that separate corporate personalities no longer exist, and proof that third party will be inequitably harmed if corporate separateness is observed].) Because Draeger has effectively sued defendants who are the corporation, those defendants – whether individuals or other corporate entities – may invoke the agreement signed by Broadway.
Broadway by the Sea is a fictitious business name owned and used by Hacienda.
Draeger attempts to distinguish the present case from Rowe by focusing only on the nominal parties to the appeal – North American, John and David Sorensen. Although the Sorensens are being sued as alter egos of North American, Draeger argues, Rowe does not apply in this case because North American was not a party to the agreement. This argument ignores Draeger’s own allegations in his complaint that defendants were the alter egos of one another. North American is alleged to be the alter ego of a party to the agreement, and a claim clearly within the scope of the agreement is alleged against North American. Under the clear law as set forth in Rowe, the claims alleged against North American are arbitrable.
North American correctly notes that the claims against John and David Sorensen are within the terms of the agreement, by virtue of being officers, directors, or shareholders of Broadway. (The Sorensens are actually officers, directors, and/or shareholders of Hacienda, which does business under the Broadway name.) Draeger argues in his respondent’s brief that the claims against the Sorensens would not be subject to arbitration because the agreement’s language is limited to claims against Broadway’s officers, directors, or shareholders who are “sued by reason of their position as shareholders, directors, officers, managers, employees, or agents of Broadway by the Sea.” Because Draeger is suing the Sorensens as alter egos of North American, and not because of their relationship to Broadway, he argues, the agreement would be inapplicable. A review of the complaint shows Draeger is simply incorrect. Draeger’s complaint alleges the year-end bonuses were made “if at all, in the amount determined by John Sorensen, president of the Business Defendants.” The complaint also alleges, “[t]he actions of the corporate defendants were done with the knowledge, approval, and/or ratification of the officers, directors, and managers.”
Disposition
The order is reversed. Appellant to recover costs on appeal.
WE CONCUR: SILLS, P. J., IKOLA, J.