Opinion
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. 30-2008-00102420, Kirk Nakamura, Judge.
Albert & Will and Timothy N. Will for Defendant and Appellant.
Kevin E. Monson for Plaintiffs and Respondents.
OPINION
O’LEARY, ACTING P. J.
Ali Sajadian appeals from the trial court’s denial of his motion to compel arbitration. He contends the court erroneously concluded (1) he was not a third party beneficiary to an arbitration agreement, and alternatively (2) he waived his right to arbitrate. We affirm the trial court’s order.
I
Larry and Janis Pitzak (the Pitzaks) filed a lawsuit against Envision Capital Management, Envision Direct, and several individuals (Gary R. Headding, Frank Mercuri, III, and Ali Sajadian). They alleged Headding, Mercuri, and Sajadian were partners and agents who owned and operated Envision Capital and Envision Direct, offering financial planning services.
According to the complaint, the Pitzaks met Headding at a retirement planning seminar. They hired him to be their financial investment advisor. In August 2007, the Pitzaks and Headding entered into an agreement (the Headding Agreement) “concerning block stock purchases, sales and profits realized on the gain of such purchases and sales.” Headding agreed to act as the Pitzaks’ agent in buying and selling blocks of stocks, splitting the profits 50/50. The agreement specified it was limited to only block trades and did not include “the normal everyday activity of the management of the Fidelity Accounts” held by the Pitzaks. The Pitzaks agreed to give Headding a 1099 form for tax purposes of all transactions within the scope of the Headding Agreement. The Pitzaks alleged the Headding Agreement was modified on October 11, 2007, to include the provision “any los[s]es incurred will be 100 [percent] refunded by [Headding] when and if they occur.”
Headding purchased stock in Varian Semiconductor Equipment Associates using the Pitzaks’ funds. The value of the stock dropped dramatically, and the Pitzaks lost approximately $500,000. On October 12, 2007, Headding gave the Pitzaks a $17,500 check as payment for a portion of the losses. The bank notified the Pitzaks there were insufficient funds to cover the check, and it was returned. On January 10, 2008, Headding gave the Pitzak’s $60,000, but that check was also returned due to insufficient funds. The Pitzaks alleged Headding refused to pay the Pitzaks for their losses.
The Pitzaks’ lawsuit alleged causes of action against all defendants for: (1) breach of the Headding Agreement “by failing and refusing to pay” the Pitzaks’ losses; (2) fraud by intentional misrepresentation based on Headding’s representation the checks were valid causing the Pitzaks to postpone legal action, (3) fraud by false promise made “at the time Headding entered into the [Headding Agreement]” with the Pitzaks; and (4) breach of fiduciary duties “as agent and investment advisor.”
Sajadian was served with the complaint in December 2008. In January 2009 he filed a case management statement. His general denial to the complaint asserted arbitration as an affirmative defense, but Sajadian did not request arbitration at the case management conferences in January, February, or May 2009. He served the Pitzaks with discovery requests in May, which they answered.
At the end of July 2009, Sajadian filed a petition to compel arbitration. Sajadian alleged he “never spoke to the Pitzaks, never gave them any advice, never had access to their Fidelity accounts, and had no relationship whatsoever with [them].” Sajadian asserted he was sued simply because he was a former member of Envision. He concluded he should not be a defendant in the lawsuit, but in any event, the action was subject to arbitration.
Specifically, Sajadian asserted all the causes of action “arise out of or relate to the Pitzaks’ investment accounts with Fidelity Investments... wherein they used [Envision] as an advisor.” Sajadian asserted the Pitzaks had to sign several agreements to open their Fidelity accounts and to notify Fidelity when the Pitzaks retained Headding/Envision to help them buy and sell stocks. All these agreements incorporated by reference or contained an arbitration clause generally stating, “All controversies that may arise between us (including, but not limited to, controversies concerning any account, order or transaction, or the continuation, performance, interpretation or breach of this or any other agreement between us, whether entered into or arising before, on or after the date this account is opened) shall be determined by arbitration....” (Italics added.)
In his motion to compel arbitration, Sajadian stated it was undisputed the Pitzaks enjoyed profits from stock trading using their Fidelity accounts in the early Fall of 2007, including “short term profits in Varian Semiconductor” amounting to over $278,000 in their Fidelity accounts. He asserted “all the causes of action arise out of or relate to the Pitzaks’ investment accounts with Fidelity....” Specifically, Sajadian alleged, “The Pitzaks now bring this action because one of their later 2007 trades in Varian Semiconductor lost money, ” and Headding refused to honor his agreement to personally cover any losses. Sajadian argued the Fidelity arbitration clauses broadly covered the Pitzaks’ dispute. Sajadian acknowledged he did not sign any of the Fidelity agreements, but he argued he was entitled to the benefits since the Pitzaks allege he was their agent (via his ownership of Envision). Finally, Sajadian alleged the petition is timely because the Pitzaks only recently turned over the arbitration agreements in their possession.
In their opposition, the Pitzaks stated Sajadian was not a party to the Fidelity arbitration agreement and, alternatively, Sajadian waived the right to compel arbitration by considerable participation in the lawsuit. The Pitzaks agreed with Sajadian’s version of the facts, i.e., they signed an agreement to notify Fidelity when they hired Envision to be their financial advisor, authorizing Envision to purchase stock using funds from the Pitzaks’ Fidelity accounts. However, they argued this designation did not change the fact the Fidelity agreement was only between the Pitzaks and Fidelity.
The Pitzaks discussed the various documents they signed to open and maintain their Fidelity accounts. First, they executed a “Brokerage Account Application” that specified the Pitzaks owned the accounts held by Fidelity. The Brokerage Account Application incorporated by reference a document called the “Client Agreement” containing the arbitration clause recited above. These two documents specified the Pitzaks and Fidelity were the contracting parties.
The Pitzaks also executed two “Advisor Authorization and Termination Forms” to designate Envision as their authorized advisor with respect to their Fidelity brokerage account. This form required the Pitzaks to agree, “I represent and/or understand and agree that: [¶] 1. I have selected my authorized agent/advisor based on criteria I deem appropriate for my investment needs without any advice or recommendation from Fidelity. [¶] 2. All decisions relating to my investment or trading activity shall be made solely by me or my authorized agent/advisor. [¶] 3. Fidelity is authorized to accept the instructions of the authorized agent/advisor on my behalf....”
In addition, the Advisor Authorization Form specified “Fidelity and the authorized agent/advisor are not affiliated and have no relationship except as described in this agreement...” and “Fidelity has no responsibility and will not participate in or review the authorized agent/advisor’s trading decisions or in any way review, monitor or supervise the suitability of the investment decision or activity of the authorized agent/advisor.”
In his reply, Sajadian reiterated he was entitled to the benefits of the Fidelity agreements because he was alleged to be the Pitzaks’ agent. He argued well settled case law holds an agent, non-signatory, is entitled to the benefits of an arbitration agreement signed by the principal (the Pitzaks).
The court agreed with the Pitzaks and denied the petition to compel arbitration. The minute order stated, “There is no arbitration agreement between... Sajadian and [the Pitzaks]. The arbitration agreement is between [the Pitzaks] and non-party Fidelity Investments and does not extend to” Sajadian (the Pitzaks’ alleged agent). Alternatively, the court ruled, “Even assuming there was a viable arbitration agreement between the parties, [Sajadian] waived any right to compel arbitration by litigating this lawsuit and conducting formal discovery.”
II
A. Standard of Review
“Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of the interpretation was introduced in the trial court. [Citation.]” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.) Here, there is no conflicting evidence and we review the issues de novo.
B. Enforcement of Arbitration Agreements by Nonsignatories
Sajadian contends the trial court erred in denying the petition to compel arbitration based on the finding he was a nonsignatory to the Fidelity arbitration agreement. Sajadian asserts he can compel arbitration because of his agency relationship to a party who signed an arbitration agreement. He is wrong.
“Public policy favors arbitration as an expedient and economical method of resolving disputes, thus relieving crowded civil courts. However, arbitration assumes that the parties have elected to use it as an alternative to the judicial process. [Citation.] Arbitration is consensual in nature. The fundamental assumption of arbitration is that it may be invoked as an alternative to the settlement of disputes by means other than the judicial process solely because all parties have chosen to arbitrate them. [Citations.] Even the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement. ‘The right to arbitration depends on a contract.’ [Citations.]” (County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 244-245.)
With a few limited exceptions, generally only parties to an arbitration contract may enforce it or be required to arbitrate. “Exceptions in which an arbitration agreement may be enforced by or against nonsignatories include where a nonsignatory is a third party beneficiary of the agreement [citation] and when a nonsignatory and one of the parties to the agreement have a preexisting agency relationship that makes it equitable to impose the duty to arbitrate on either of them. [Citations.]” (Nguyen v. Tran (2007) 157 Cal.App.4th 1032, 1036-1037 (Nguyen).)
On appeal, Sajadian relies primarily on the latter exception, asserting his status as an agent of the Pitzaks makes it equitable to impose upon the Pitzaks a duty to arbitrate based on a contract they signed with a third party, Fidelity. Thus, we will focus our discussion on whether a nonsignatory is entitled to enforce an arbitration provision simply because he is the agent of a signatory.
According to Sajadian, this court’s recent opinion, Nguyen, supra 157 Cal.App.4th 1032 , is “on all fours with the facts here.” In that case, a real property contract between buyers and sellers included an arbitration provision. (Nguyen, supra, 157 Cal.App.4th at p. 1038.) They agreed to arbitrate disputes or claims involving their brokers, as long as the brokers agreed to arbitration.
Specifically, the agreement stated: “BROKERS: Buyer and Seller agree to mediate and arbitrate disputes or claims involving either or both Brokers... provided either or both Brokers shall have agreed to such mediation or arbitration prior to, or within a reasonable time after, the dispute or claim is presented to Brokers. Any election by either or both Brokers to participate in mediation or arbitration shall not result in Brokers being deemed parties to the [a]greement.” (Nguyen, supra, 157 Cal.App.4th at p. 1035.)
In the Nguyen case the buyers filed a fraud suit against sellers as well as the listing brokers (the sellers’ agents) and the cooperating brokers (the buyers’ agents) for failing to disclose an unpermitted guest house. (Nguyen, supra, 157 Cal.App.4th at p. 1039.) The listing brokers and cooperating brokers were not parties to the contract, but the cooperating brokers petitioned for arbitration. It was opposed by the buyers and the listing brokers. The trial court denied the petition. In the appeal heard by a different panel of this court, it was determined, “We conclude cooperating brokers, as agents of one of the parties to the agreement containing the arbitration clause, may compel their principal to arbitrate but they may not compel arbitration against listing brokers, who did not sign the agreement and had no preexisting confidential or contractual relationship with cooperating brokers.” (Id. at p. 1034.)
In deciding the cooperating brokers could not compel the listing broker to arbitrate we reasoned there was no evidence of an agreement to arbitrate by the listing broker. (Nguyen, supra, 157 Cal.App.4th at p. 1038.) We explained, “[C]ooperating brokers have not identified any authority to support the proposition that one nonsignatory party has the right to invoke an arbitration clause against another nonsignatory party based on an agreement signed only by the principals....” (Ibid.) We recognized there are cases which hold the broker is a special agent with limited powers, however, “[at most, [those cases] may allow listing brokers the right to require buyers to arbitrate their claims against them should they so choose, and vice versa. But nothing in them allows cooperating brokers to force listing brokers to do so.” (Nguyen, supra, 157 Cal.App.4th at p. 1039.) There was “no basis to create another exception to the general rule that an arbitration provision cannot be enforced to compel a nonsignatory to arbitrate. Cooperating brokers and listing brokers [are] free to enter into a written arbitration agreement if they so desired. They did not and there is no factual or legal basis for us to impose an obligation to arbitrate under these circumstances.” (Ibid.)
A different conclusion was reached with respect to the cooperating Broker’s (the buyer’s agent’s) right to compel buyer to arbitration. The court relied on Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759 (Westra), another real estate fraud case. There the purchaser sued the real estate broker, who petitioned to compel arbitration based on a clause in the purchase agreement signed by the purchaser and the seller but not the broker. The provision read, “Buyer, Seller and Agent agree that such controversy [arising with respect to the subject matter of the purchase agreement] shall be settled by final, binding arbitration....” (Westra, supra, 129 Cal.App.4th at p. 762.) The appellate court in Westra reversed the denial of the broker’s petition to compel arbitration holding the broker had a preexisting relationship to both parties as their agent. The arbitration provision was, therefore, “binding on [the broker] as well as the [buyers], and [the broker] as an agent is entitled to enforce the arbitration agreement, to which the [buyers] and [seller] had agreed. [Citations.]” (Westra, supra, 129 Cal.App.4th at p. 766; see also Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418, [nonsignatory may compel arbitration if sued as signatory’s agent]; Valley Casework, Inc. v. Comfort Construction, Inc. (1999) 76 Cal.App.4th 1013, 1021 [nonsignatories acting as agents for party to arbitration clause may enforce the provision]; Berman v. Dean Witter & Co., Inc. (1975) 44 Cal.App.3d 999, 1004 [same] (Berman).)
Applying this rational in the Nguyen case, we stated, “Here the purchase agreement lists cooperating brokers as the agents of buyers, who signed the purchase agreement. As such, cooperating brokers could have been compelled to arbitrate the claims against them although they did not sign the agreement and were not parties to it.” (Nguyen, supra, 157 Cal.App.4th at p. 1037.) Under a plain reading of the arbitration clause, “buyers and sellers agreed to let either or both cooperating brokers and listing brokers decide whether to arbitrate the claims against them. Cooperating brokers demanded it and no claim has been made the demand was untimely.” (Id. at p. 1038.)
We followed well settled law, “[A] nonsignatory who is the agent of a party to a contract containing an arbitration clause may compel the other parties to the contract to arbitrate their claims against [the nonsignatory] for liability arising under the contract ... but not other claims. [Citations.] [¶] [A]n agent ‘cannot invoke an arbitration clause unless the parties intended to bring them into the arbitral tent. [Citation.]” (Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group 2003) ¶ 5:266.5, p. 5-187 (rev. # 1 2009).)
Just as the cooperating brokers in the Nguyen case could compel their principal to arbitrate, Sajadian claims he is the agent of one of the parties to the Fidelity agreement containing the arbitration clause, and he may compel his principal to arbitrate. We disagree. Although it is true one of the Fidelity agreements lists Envision as the Pitzaks’ advisor, and this designation would necessarily cover Envision’s owners (including Sajadian), that is where the similarities with the Nguyen case end. Sajadian fails to appreciate a nonsignatory who is an agent of a party to a contract may compel the other parties to arbitrate for liability arising out of the contract. Sajadian is a nonsignatory agent who wishes to compel its principal to arbitrate a dispute unrelated to the contract containing the arbitration clause. Indeed, the lawsuit is not about whether the one of the two principals (Fidelity or Pitzaks) of the contract is liable for wrongdoing, and therefore the principal’s agent has no grounds to invoke the arbitration clause.
In Nguyen and Westra it was clear the claim of real estate fraud arose out of the real estate purchase agreement containing the arbitration clause. In this case, it is clear all the causes of action relate to Headding’s conduct and the Headding Agreement, which does not contain an arbitration clause. The lawsuit does not allege any liability or breach arising out of the Fidelity agreements containing the arbitration clauses. The Pitzaks do not claim Fidelity did anything wrong. They have no issue with Fidelity, their agreement with Fidelity, or their Fidelity accounts. Their dispute is entirely based on tort allegations and breach of a separate contract with their agent Headding and Envision who made an allegedly poor investment choice and then failed to keep his promise to repay their investment losses. As aptly noted by the Pitzaks, “The Fidelity account is entirely irrelevant to each and every cause of action alleged [in this case]. [Sajadina] may as well be claiming privileges under an arbitration clause in [the Pitzaks’] automobile lease or health club membership agreement that, like the Fidelity account agreement, have nothing to do with this lawsuit.”
At oral argument, Sajadian complained this argument was not raised below and the Pitzaks should not be allowed to make it for the first time on appeal. Not so. In Sajadian’s petition he alleged the agreement related to the lawsuit because Headding used money from the Fidelity accounts to purchase stocks using the Fidelity brokerage accounts. In their opposition below, the Pitzaks did not dispute the relevant facts regarding where and how Envision/Headding purchased the stocks. Implicit in their argument the Fidelity arbitration agreement is not binding is the argument where and how the stocks were purchased have nothing to do with the lawsuit. The Pitzaks have always maintained their dispute is with Headding’s failure to make good on his promise to pay for his poor investment choices, and has nothing to do with when or how the investment was made with Fidelity.
All the other cases cited in Sajadian’s briefs are distinguishable. In those cases, the arbitration agreement was applicable to the controversy between the parties. For example, in Letizia v. Prudential Bache Securities, Inc. (9th Cir. 1986) 802 F.2d 1185, a client sued a brokerage firm and two of its employees (the client’s broker, and that broker’s supervisor). The court held the firm’s employees, who were nonsignatories to brokerage agreement, could be bound by its arbitration clause for the client’s action for fraud and violation of federal securities laws. It reasoned the employees were integral to, if not directly responsible for, the alleged statutory violations the client’s securities account, and the firm had indicated its intention to protect its employees through the customer agreement. (Id. at p. 1188.) In our case, the wrongful acts related to Headding’s refusal to comply with the terms of the Headding Agreement. It was not contended Headding, as the Pitzaks’ agent, violated any term of the Fidelity accounts or Fidelity agreements. Fidelity and the Pitzaks never indicated any intention to protect the broker through their customer agreement for disputes unrelated to the agreement. (Compare also Pritzker v. Merrill Lynch, Pierce, Fenner & Smith (3d Cir. 1993) 7 F.3d 1110, 1121 [broker firm’s non-signatory employee and subsidiary bound under firm’s arbitration clause in broker agreement with trustees of a pension plan suing for ERISA violations arising from management of agreement]; Lee v. Chica (8th Cir. 1993) 983 F.2d 883, 886, cert. denied, 510 U.S. 906 [agent and employee of brokerage firm could be compelled to arbitrate client’s securities claims against him arising out of client’s brokerage firm agreement].)
Sajadian also cites to several cases generally discussing the rights of third party beneficiaries. However, as noted in all the cases he cites, a third party beneficiary benefitted as a nonsignatory to an agreement because that same agreement was applicable to the controversy at issue. (See Keller Construction Co. v. Kashani (1990) 220 Cal.App.3d 222 [general partner is bound to arbitration contained in agreement entered into by the limited partnership and which is also the subject of its dispute with plaintiff]; Chan v. Drexel Burnham Lambert, Inc., (1986) 178 Cal.App.3d 632 [stockbroker sued employer brokerage firm for wrongful discharged and invoked NYSE contract mandating arbitration of employment disputes]; Berman, supra, 44 Cal.App.3d 999 [securities broker could compel arbitration against husband and wife who sued for negligence in connection with the handling of an order placed by the husband acting as his wife’s agent using wife’s brokerage account].) Not surprisingly there is no authority holding a third party beneficiary can invoke an arbitration clause relating to an agreement not applicable to the lawsuit. We agree with the trial court’s conclusion Sajadian’s alleged ability to arbitrate claims arising from the Fidelity agreements has no relevance to the case because the Fidelity agreements are not relevant to the controversy at issue.
C. Waiver of the Right to Arbitrate.
The court ruled Sajadian waived his right to arbitrate by extensively litigating the lawsuit and conducting discovery. Based on our ruling above affirming the trial court’s ruling, we need not review the secondary basis for the court’s order.
III
The order is affirmed. Respondents shall recover their costs on appeal.
WE CONCUR: MOORE, J., IKOLA, J.