Opinion
A151773
11-20-2018
STEVE KOSKIE, Plaintiff and Respondent, v. CONSTANCE THERAPEUTICS, INC., 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Contra Costa County Super. Ct. No. MSC17-00192)
Constance Therapeutics, Inc. (CTI) and Constance Finley appeal from an order denying their petition to compel arbitration of claims brought against them by Steve Koskie. Appellants contend that those claims, allegedly arising out of an oral agreement with Koskie, must be arbitrated pursuant to a written arbitration agreement between CTI and SPK Ventures LLC (SPK Ventures). Their arguments are meritless, and we will affirm the order.
I. FACTS AND PROCEDURAL HISTORY
A. The Contract and Arbitration Agreement Between CTI and SPK Ventures
In July 2015, CTI, as the "Client," and SPK Ventures, as the "Advisor," entered into a contract for services (Engagement Agreement). The Engagement Agreement described SPK Ventures as "a professional team who consults with/for start up companies and facilitates introductions to prospective strategic partners, playing a pro-active role In the successful growth of their business development initiatives."
Pursuant to the Engagement Agreement, CTI was to pay SPK Ventures a minimum monthly retainer of $10,000, plus the possibility of 8 percent commissions, in exchange for SPK Ventures identifying new strategic partners and sales channels for CTI, enhancing CTI's public profile, and helping CTI to create revenue. CTI was to pay all fees and cost reimbursements to SPK Ventures by check payable to SPK Ventures or by wire transfer to a SPK Ventures' bank account. The Engagement Agreement did not refer to Koskie except in the signature block, where Koskie signed on behalf of SPK Ventures as its managing partner.
The Engagement Agreement contained an arbitration provision that required CTI and SPK Ventures to arbitrate disputes as follows: "Advisor [SPK Ventures] and Client [CTI] agree that any dispute between them will be resolved through final and binding arbitration . . . [¶] . . . [¶] . . . To the fullest extent allowed by law, this Agreement is intended to apply to any and all disputes between Advisor and Client . . . ."
B. Koskie's Complaint Based on An Oral Employment Agreement
In February 2017, Koskie filed a lawsuit against CTI and its Chief Executive Officer, Constance Finley. The complaint alleges that "[b]eginning in July 2015, through his consulting business, SPK Ventures, Steve Koskie worked for [CTI] as its Chief Operating Officer." In September 2015, Finley asked Koskie "to work full-time as its COO, rather than in his capacity as a part-time outside consultant, agreeing to employ him directly as COO, to raise his compensation from $10,000 per month to $25,000 per month, and also to pay an 8% commission on investment capital that he raises, as well as an 18-month severance upon termination without 'cause.'" Pursuant to this oral agreement, Koskie began working full-time as CTI's COO, the parties started to reduce the oral agreement to writing in the form of an "Executive Employment Agreement," and Koskie raised $500,000 for CTI in July 2016 and $1.5 million in September 2016. CTI then terminated Koskie as COO and refused to pay him any commission or severance. Neither the form Executive Employment Agreement nor any other written contract between Koskie and CTI was ever signed. Based on these allegations, Koskie asserted causes of action against CTI and Finley for breach of the oral employment agreement, unjust enrichment, quantum meruit, and fraud.
Another plaintiff was Sheila Hoyt, who asserted her own claims against CTI and Finley. Her claims are not the subject of the order on appeal.
CTI and Finley filed a petition to compel arbitration of Koskie's claims, contending that the claims arose out of the consulting services Koskie had provided through SPK Ventures under the Engagement Agreement.
In opposition to the petition to compel arbitration, Koskie filed a declaration pointing out that his lawsuit was based not on the Engagement Agreement between SPK Ventures and CTI, but on the oral agreement between Koskie and the defendants. He averred that he and the defendants had planned to reduce this oral agreement to a separate writing, and to that end CTI provided him with the form Executive Employment Agreement as a model. This form did not contain any arbitration provision, and Koskie "never agreed to arbitration for resolution of disputes arising out of [his] oral employment agreement to work full-time as [CTI's] COO, nor was the subject even raised in [his] discussions with Finley in negotiating the terms of [his] direct full-time employment."
The trial court denied the petition. The court noted that the plain language of the Engagement Agreement limited its arbitration provision to disputes between CTI and SPK Ventures. The court observed that, while it appeared that Koskie is the principal of SPK Ventures, "there is no evidence . . . that Koskie ought to be treated as SPK's alter ego." "The only evidence [defendants] provided the court is the Engagement Agreement, which on its face is between SPK and [CTI], and does not involve Koskie." Because Koskie's claims to an 8 percent commission arose from the oral Executive Employment Agreement, not from the Engagement Agreement, there was no dispute to arbitrate between CTI and SPK Ventures, and the dispute between CTI and Koskie arose from a separate contract that did not contain an arbitration provision.
This appeal followed.
II. DISCUSSION
A strong public policy favors the arbitration of disputes, and doubts should be resolved in favor of arbitration. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) At the same time, arbitration is a matter of contract, and there is no public policy requiring persons to arbitrate controversies they did not agree to arbitrate. (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59.)
The parties do not dispute that Code of Civil Procedure section 1281.2 governs appellants' petition. That statute provides: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, 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 [certain facts not present here]." (Italics added.) Thus, for a petitioner to be entitled to arbitrate a plaintiff's claim, the petitioner generally must show (1) a written agreement, (2) to which the plaintiff is a party, (3) requiring the particular controversy to be arbitrated. Appellants have failed to establish any of these three requisites.
Koskie's complaint alleges that his claims arise from his oral agreement with CTI. The oral agreement is obviously not a basis for compelling arbitration, since there is no evidence that its terms provided for arbitration and, in any event, it is not an agreement in writing. (§ 1281.2; Matthau v. Superior Court (2007) 151 Cal.App.4th 593, 598.)
Appellants' attempt to invoke the arbitration provisions in the earlier written Engagement Agreement - between CTI and SPK Ventures - is plainly unavailing. Koskie was not a party to the Engagement Agreement, so he is not bound by its arbitration provision. (§ 1281.2; Matthau v. Superior Court, supra, 151 Cal.App.4th at p. 598.) In addition, the scope of the Engagement Agreement was limited to claims between CTI and SPK Ventures, not CTI and Koskie. (§ 1281.2.) Because there is no written agreement by which Koskie agreed to arbitrate his claims, the trial court properly denied appellants' petition to compel arbitration.
As discussed next, appellants' arguments to the contrary are untenable.
1. Claims Arising From Work Related to the Arbitration Provision
Appellants point out that Koskie alleges he had worked for CTI through his consulting business, SPK Ventures. The fact that Koskie did the work that satisfied SPK Ventures' obligations under the Engagement Agreement, however, did not make him a party to the Engagement Agreement. Its arbitration provision therefore cannot bind him.
Appellants also argue that the work Koskie performed on behalf of SPK Ventures under the Engagement Agreement was similar or identical to the work he did under the alleged subsequent oral agreement. Contending that Koskie has alleged a breach of an oral agreement by which he would continue performing, without interruption, the services he performed under the Engagement Agreement, appellants insist the oral agreement bears a rational relationship to the arbitration provision in the Engagement Agreement, and so the arbitration provision must apply.
The argument is unsound. The part-time work Koskie performed during the period of the Engagement Agreement was not the same as the full-time work he was required to perform under the terms of the oral agreement. Moreover, even if Koskie's work under the two agreements was the same, the fact remains that Koskie not a party to the arbitration agreement, and therefore cannot be bound by it.
Appellants have not claimed, much less established, that Koskie was an alter ego of SPK Ventures or a third-party beneficiary of the Engagement Agreement.
2. Argument that the Arbitration Agreement Was Extended
Appellants point out that an enforceable arbitration agreement " 'shall be deemed to include a written agreement which has been extended or renewed by an oral or implied agreement.' " (Code Civ. Proc., § 1280, subd. (f).) This provision simply means that arbitration may be compelled based on a written arbitration agreement or its extension, even if its extension was not in writing. That statute is immaterial here. First, there is no evidence that the Engagement Agreement was extended or renewed: the alleged oral agreement had different terms and was between different parties than the Engagement Agreement. Second, even if the Engagement Agreement was extended or renewed, it would do appellants no good, since Koskie was not a party to it. And third, Koskie is not seeking relief under any extension or renewal of the Engagement Agreement, but under the separate oral agreement. As explained ante, that oral agreement cannot be a basis for compelling arbitration.
Appellants' reliance on Ajida Techs. v. Roos Instruments (2001) 87 Cal.App.4th 534 is misplaced. There, the parties' dispute arose out of an agreement that contained an arbitration provision. (Id. at p. 538) Although the agreement terminated in 1997, the arbitrators ruled that the agreement's terms requiring arbitration and permitting attorney fees would apply to any future disputes arising out of the award. (Id. at pp. 538-539.) The Court of Appeal found no error, since the provisions of the arbitrator's award bore a rational relationship to the parties' agreement, and "a party's contractual duty to arbitrate disputes may survive termination of the agreement giving rise to that duty." (Id. at p. 545.) Ajida is inapposite: the issue here is not whether an arbitration agreement's terms survived the termination of the parties' agreement, but whether an arbitration agreement's terms can be imposed upon a litigant who is not a party to the agreement and whose claims do not fall within its scope. Other cases on which appellants rely are similarly irrelevant. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1675 [" '[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together' "]; Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery Workers Union, AFL-CIO (1977) 430 U.S. 243, 252 [parties' obligations under their arbitration clause survived the termination of the contract with respect to a dispute arising out of the terminated contract].)
Appellants argue in their reply brief that CTI continued to make its payments to Koskie through SPK Ventures after the oral agreement, as had occurred under the Engagement Agreement, because Koskie does not allege otherwise. This argument is also unavailing. At best, the inference would be that the oral agreement was just an oral modification of the Engagement Agreement. But since Koskie is not a party to the Engagement Agreement, its arbitration provision does not apply.
Appellants contend in their reply brief that no oral agreement was ever formed, and the terms of an agreement were never decided upon. They overlook the fact that this argument directly contradicts their contentions that the oral agreement extended the arbitration provision. Their argument misses the mark anyway. First, the allegations of the complaint are that an oral agreement was formed. Second, even if there was no enforceable oral agreement, it would not mean the arbitration clause in the Engagement Agreement, between different parties and limited to different controversies, should apply. --------
3. Argument that the Claims Arose Under the Engagement Agreement
Appellants next contend that Koskie's claims should be construed as being alleged under the Engagement Agreement. Appellants argue: "It is true that Koskie chose not to frame his case as a breach of the Engagement Agreement. However, California pleading laws dictate that the allegations of a complaint must be liberally construed, with a view to substantial justice between the parties. (Code Civ. Proc., § 452.) Under a liberal construction, Koskie's claims for an 8% commission arise not only from the alleged oral agreement but from the plain terms of the Engagement Agreement as well."
Appellants' argument is meritless. First, Code of Civil Procedure section 452 pertains to the construction of a pleading liberally in favor of the pleader, to determine if the pleading has stated a cause of action, for example. We question appellants' view that the statute compels us to construe allegations in this case against the pleader. Second, the allegations of Koskie's complaint are not by any means susceptible to the interpretation appellants espouse. Although Koskie acknowledges both the Engagement Agreement and the oral Executive Employment Agreement in his complaint, the allegation underlying his breach of contract claim is that "CT breached the Executive Employment Agreement by failing to pay the 8% commission on the $2 million of capital that Mr. Koskie raised, and by failing to pay 18-months' severance upon terminating Mr. Koskie as COO." (Italics added.) Appellants' representation that Koskie based his claim on the Engagement Agreement is simply false.
In a similar vein, appellants assert that the "trial court's determination that the second cause of action for payment of an 8% commission 'arose from the employment agreement, not the Engagement Agreement' . . . is patently incorrect." Actually, the court's determination was patently correct. The second cause of action sought recovery for defendants' unjust enrichment, based on the $2 million in funding Koskie secured (which was during the period of the alleged oral agreement) and the services Koskie provided in reliance on defendants' agreement to pay him severance upon termination (which was a term of the alleged oral agreement). Koskie's allegations can only be construed to pertain to a claim under the oral agreement, not the Engagement Agreement.
4. Assumption of Obligations Under the Arbitration Provision
Appellants argue that a non-signatory may be bound by an arbitration clause if his subsequent conduct indicates that he is assuming the obligation to arbitrate. (Citing Jones v. Déjà Vu, Inc. (N.D. Cal. 2005) 419 F.Supp.2d 1146, 1150; see also Gvozdenovic v. United Air Lines, Inc. (2nd Cir. 1991) 933 F.2d 1100, 1105.) The problem with this argument is that there is no evidence Koskie assumed any obligation to arbitrate. In fact, the cases cited by appellants show just how off-base their argument is. Jones ruled that the parties to an arbitration provision may be compelled to arbitrate claims that arose before the contract was signed or after it lapsed, since the provision had no temporal limitation. (Jones, at p. 1150.) In Gvozdenovic, appellants had argued that the arbitration agreement had been entered into before their employment, so they could not be bound by the agreement or the ensuing arbitration award, but the court found they were bound by the award because their conduct manifested a clear intent to arbitrate by actively and voluntarily participating in the arbitration. (Gvozdenovic, at p. 1105.) Here, we are not concerned with whether litigants are bound by an award from an arbitration in which they participated, but whether a nonparty can be compelled to arbitrate.
5. Estoppel of Non-Signatory
Appellants assert in their reply brief that Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295 (Jensen) recognized that a "nonsignatory plaintiff may be estopped from refusing to arbitrate when he or she asserts claims that are 'dependent upon, or inextricably intertwined with' the underlying contractual obligations of the agreement containing the arbitration clause." (Id. at p. 306, citing JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1239.) Appellants argue that the record reflects that all of Koskie's claims are "inextricably bound up" with the Engagement Agreement.
We generally do not consider arguments raised for the first time in an appellant's reply brief. (REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500.) We also note that Jensen does nothing for appellants' cause, based on the record in this case. In Jensen, the court ruled that a non-signatory to an arbitration agreement was not bound by it, observing that " '[p]ersons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees.' " (Jensen, supra, 18 Cal.App.5th at p. 300.) In rejecting the appellants' estoppel claim specifically, the court explained that a plaintiff's claims are not arbitrable under an arbitration agreement he did not sign, unless the plaintiff relied on that agreement to establish his cause of action. (Id. at p. 306.) Here, akin to the plaintiffs in Jensen, Koskie did not rely or depend on the terms of the Engagement Agreement in asserting his claims under the oral agreement, and the claims he did assert would be viable even without reference to the Engagement Agreement. " 'That being so, the basis for equitable estoppel - relying on an agreement for one purpose while disavowing the arbitration clause of the agreement - is completely absent.' [Citation.]" (Id. at p. 306.)
In sum, the trial court did not err in denying appellants' petition to compel arbitration. Appellants' arguments in this appeal are utterly devoid of merit.
III. DISPOSITION
The order is affirmed.
/s/_________
NEEDHAM, J. We concur. /s/_________
JONES, P.J. /s/_________
SIMONS, J.