Tentative Ruling

Judge Thomas Anderle
Department 3 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Reetz Fox & Bartlett LLP v. Highway Recycling, Inc., et al.
Case No: 19CV03406
Hearing Date: Tue Feb 25, 2020 9:30

Nature of Proceedings: Petition Compel Arbitration

Petition to Compel Arbitration

ATTORNEYS:

For Petitioner and Plaintiff Reetz, Fox & Bartlett LLP: Wiley G. Uretz, Randall Fox, Reetz, Fox & Bartlett LLP

For Respondents and Defendants Highway Recycling, Inc., United Paving, Inc., United Sealcoating and Slurry Seal, Inc., and Alberto Rodriguez: Simon P. Etehad, Steven Berkowitz, David A. Carman, Etehad Law APC

RULING: For the reasons set forth herein, the motion of petitioner Reetz, Fox & Bartlett LLP to compel arbitration is granted in part to compel arbitration of issues arising from legal services provided by petitioner to or on behalf of: (1) respondent Alberto Rodriguez in connection with or in aid of the “Kellogg Avenue Project improper precondemnation activities by City of Goleta,” at any time, as to Rodriguez; (2) respondent Highway Recycling, Inc., regardless of subject matter, from and after its formation on December 22, 2011, to May 20, 2015, as to Highway Recycling, Inc., and Rodriguez; (3) respondents Highway Recycling, Inc., United Paving, Inc., or United Sealcoating and Slurry Seal, Inc., regardless of subject matter, from and after May 20, 2015, as to those defendants. This action is stayed pending disposition of the arbitration. To whatever extent issues raised in the complaint are not resolved by the arbitration, those issues will be addressed following the lifting of the stay.

Background:

On June 28, 2019, petitioner and plaintiff Reetz, Fox & Bartlett LLP (RFB) filed its petition to compel arbitration and complaint asserting claims to be arbitrated for breach of contract, account stated, and reasonable value for services rendered against respondents and defendants Highway Recycling, Inc., United Paving, Inc., United Sealcoating and Slurry Seal, Inc., and Alberto Rodriguez. (Note: Respondents identify Highway Recycling, Inc., as the entity erroneously also referred to as IL Highway Recycling, Inc.) The claims asserted in the petition and complaint arise out of amounts due and unpaid for legal services rendered for the respondents.

As set forth in the declaration of attorney Randall Fox: RFB represented Rodriguez from 2009 until March 2018. (Fox decl., ¶ 2.) RFB also represented Highway Recycling, Inc. (HR), United Paving, Inc. (UP), and United Sealcoating and Slurry Seal, Inc. (USS). (Ibid.) Fox is informed and believes that HR, UP, and USS are or were owned and operated by Rodriguez. (Ibid.)

In December 2009, Rodriguez contacted RFB to provide attorney services related to permitting and operating a road base recycling facility in Goleta (the Facility). (Fox decl., ¶ 3.) On December 30, 2009, RFB and Rodriguez executed a written attorney services agreement (2009 Agreement). (Fox decl., ¶ 3 & exhibit A [the 2009 Agreement].) The 2009 Agreement includes the following provisions:

“Client hereby retains and employs Attorneys and Attorneys agree to represent Client on the terms and conditions hereinafter set forth regarding Kellogg Avenue Project improper precondemnation activities by City of Goleta. Client employs Attorneys to take all steps that Attorneys deem necessary to protect Client’s interests in said matter(s) to include, but not limited to, investigation, to effect compromise, and to institute legal proceedings.” (2009 Agreement, § 2.)

“Client agrees to pay Attorneys, and others providing services at Attorneys’ request, for their services a reasonable fee at their hourly rate according to the terms of the most current ‘Schedule of Attorneys’ Fees.’ ” (2009 Agreement, § 3.)

“Statements for Attorney’s fees, costs and other expenses are due and payable upon presentation to Client.” (2009 Agreement, § 6.)

“Arbitration. As a material part of attorneys agreement, you agree that any and all disputes, claims or controversies arising out of or relating to this agreement, attorneys’ relationship, or the services performed, shall be determined exclusively by confidential, final and binding arbitration in Santa Barbara, California, in accordance with the then existing rules for commercial Arbitration of the American Arbitration Association. Disputes, claims and controversies subject to final and binding arbitration under this agreement include, without limitation, all those that otherwise could be tried in court to a judge or jury in the absence of this agreement. Such disputes, claims and controversies include, without limitation, claims for professional malpractice, disputes over attorneys’ fees and expenses, any disputes over the qualities of services which attorneys render, any claims relating to or arising out of client or attorneys’ performance under this agreement, and any other claims arising out of any alleged act or omission by client or attorneys. By agreeing to submit all disputes, claims and controversies to binding arbitration, client expressly waives his rights to have such matters heard or tried in court before a judge or jury or in another tribunal. Any award shall be final, binding and conclusive upon the parties, subject only to judicial review provided by statute, and a judgment rendered on the arbitration award may be entered in any state or federal court having jurisdiction thereof.” (2009 Agreement, § 12, capitalization altered.)

On December 22, 2011, Rodriguez formed HR to handle matters related to the Facility. (Fox decl., ¶ 4.) After forming HR, Rodriguez requested that future bills be in the name of, and sent to, HR and Rodriguez would pay them. (Ibid.) As a courtesy, RFB complied with this request. (Ibid.) It was agreed that the work performed for HR was work for Rodriguez pursuant to the 2009 Agreement. (Ibid.)

In May 2015, Rodriguez, HR, UP, USS, and other entities were served with a complaint alleging numerous Health and Safety Code violations and seeking fines and penalties. (Fox decl., ¶ 5.) Rodriguez requested that RFB represent UP, HR, and USS in the lawsuit. (Ibid.) On May 20, 2015, RFB entered into a legal services agreement with HR, UP, and USS (2015 Agreement.) (Fox decl., ¶ 5 & exhibit B [the 2015 Agreement].) The 2015 Agreement includes the following provisions:

“Client hereby retains and employs Attorneys and Attorneys agree to represent Client on the terms and conditions hereinafter set forth regarding the matter of People of the State of California v. United Paving, Inc., et al, SBSC Case No. 15CV01011. Client employs Attorneys to take all steps that Attorneys deem necessary to protect Client’s Interests in said matter(s) to include, but not limited to, investigation, to effect compromise, and to institute legal proceedings. Attorneys may provide other services as requested and provided we agree to perform such services. All services shall be subject to this agreement.” (2015 Agreement, § 2.)

“Client agrees to pay Attorneys, and others providing services at Attorneys’ request, for their services a reasonable fee at their hourly rate or fixed fee according to the terms of the most current ‘Schedule of Attorneys’ Fees,’ a copy of which is attached to this agreement.” (2015 Agreement, § 3.)

“11. Arbitration. Any dispute relating to fees and costs due pursuant to this agreement shall, at Client’s discretion and upon timely demand, be submitted to binding arbitration before the Santa Barbara County Bar Association pursuant to California Business and Professions Code section 6200, et seq., or should that organization decline to arbitrate the dispute, before the State Bar of California pursuant to California Business and Professions Code section 6200, et seq. Subject to the requirements of California Business and Professions Code section 6200, et seq., any controversy or claim arising out of or relating to this agreement shall be resolved by binding arbitration before the American Arbitration Association by a single arbitrator in Santa Barbara, California, in accordance with the Commercial Rules of the American Arbitration Association prevailing [at] the time of the arbitration and judgment on the award may be entered in any court having jurisdiction. The right to appeal from the arbitrator’s award, any judgment entered, or any order made is expressly waived.” (2015 Agreement, § 11.)

The 2015 Agreement is signed by Rodriguez as president on behalf of UP, USS, and HR. (2015 Agreement, p. 3.)

RFB performed services pursuant to the 2009 Agreement and 2015 Agreement for Rodriguez, UP, HR, and USS from 2009 to 2018. (Fox decl., ¶ 6.) During this time, RFB sent Rodriguez, UP, HR or UP regular monthly invoices. (Fox decl., ¶ 7.) Partial payments on some invoices were received sporadically until March 2016. (Ibid.) RFB continued to provide legal services pursuant to the agreements until March 20, 2018. (Ibid.) RFB continued to send monthly invoices. (Fox decl., ¶ 8.) Rodriguez acknowledged the monthly invoices and promised that payment would be forthcoming, but payment was never received. (Ibid.)

On June 21, 2019, RFB sent an informal demand to Rodriguez that the parties participate in arbitration pursuant to the agreements and also provided notices regarding fee arbitration under the Business and Professions Code. (Fox decl., ¶ 9.) No response was received to these emails. (Ibid.)

The petition and complaint was filed on June 28, 2019. On August 15, 2019, Rodriguez emailed Fox stating that he agreed to go to arbitration. (Fox decl., ¶ 11.) Fox proposed two potential arbitrators. (Ibid.) On August 27, 2019, Rodriguez’s son replied stating that Rodriguez had said to just pick one. (Ibid.) Fox selected Lawrence Sorensen and asked Sorensen’s office to handle the arbitration. (Ibid.) On September 19, 2019, Sorensen sent around a disclosure letter pursuant to Code of Civil Procedure section 1281.9 and for the next two months the parties corresponded with Sorensen’s office regarding setting an initial scheduling conference. (Fox decl., ¶ 12.)

On November 7, 2019, RFB was informed that Rodriguez had retained counsel, attorney Simon Etehad. (Fox decl., ¶ 13.) After several weeks of communications between Fox and Etehad, Etehad informed RFB that respondents refused to continue with binding arbitration absent a court order. (Ibid.)

As set forth in the declaration of Alberto Rodriguez: Rodriguez is the president of HR, UP, and USS. (Rodriguez decl., ¶¶ 2-4.) Rodriguez executed the 2009 Agreement. (Rodriguez decl., ¶ 5.) After executing the 2009 Agreement, RFB represented Rodriguez with respect to the “Kellogg Avenue Project improper precondemnation activities by City of Goleta,” but also did legal work that did not pertain to that project. (Rodriguez decl., ¶ 7.) After the 2015 Agreement was executed, RFB did represent UP, USS, and HR in case number 15CV01011, but also did legal work that did not pertain to that case. (Rodriguez decl., ¶ 10.)

RFB now seeks to compel arbitration of its fee claims pursuant to the arbitration provisions of the 2009 Agreement and 2015 Agreement. Respondents oppose the petition to compel arbitration on the grounds that the disputes are beyond the scope of those that the respondents agreed to arbitrate and to avoid inconsistent rulings, the Court should exercise its discretion to refuse to enforce the arbitration agreements.

Analysis:

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

“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 that:

“(a) The right to compel arbitration has been waived by the petitioner; or

“(b) Grounds exist for rescission of the agreement.

“(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition.” (Code Civ. Proc., § 1281.2, subds. (a)-(c).)

“ ‘California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes.’ [Citations.] ‘Even so, parties can only be compelled to arbitrate when they have agreed to do so. [Citation.] “Arbitration … is a matter of consent, not coercion.” ’ [Citations.] [¶] ‘Whether an agreement to arbitrate exists is a threshold issue of contract formation and state contract law.’ [Citations.] ‘The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.’ [Citations.]” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 858–859 (Cohen).)

There is no substantial dispute between the parties that a valid arbitration agreement exists between Rodriguez and RFB in the 2009 Agreement and between UP, USS, and HR, on the one hand, and RFB, on the other hand, in the 2015 Agreement. There is also no substantial dispute between the parties that legal services giving rise to RFB’s claims were performed pursuant to these agreements. Respondents’ opposition is based on their contention that disputes arising from legal services performed by RFB on behalf of the respondents outside of the respective agreements’ statements of the scope of agreement are not covered by the arbitration provision.

“ ‘[C]ourts presume that the parties intend courts, not arbitrators, to decide … disputes about “arbitrability,” … such as “whether the parties are bound by a given arbitration clause,” or “whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.” ’ [Citation.] However, ‘parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.’ [Citation.]” (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 891.) Neither of the parties have argued that the arbitrator is to decide the scope of arbitrability. The issue therefore is one of contract construction for the court.

The most straightforward issue is the scope of the arbitration clause in the 2015 Agreement. UP, USS, and HR are expressly parties to the 2015 Agreement. The 2015 Agreement, in its statement and subject of agreement, expressly states that “Attorneys may provide other services as requested and provided we agree to perform such services. All services shall be subject to this agreement.” (2015 Agreement, § 2.) The plain language of this section identifies that the scope of work by RFB under the 2015 Agreement includes the work on case number 15CV01011, but also includes all other work that UP, USS, or HR requests of RFB. Because all legal services performed under the terms of the 2015 Agreement are expressly within the scope of the agreement, any dispute regarding such legal services, including payment, fall clearly within the scope of the arbitration provision of the 2015 Agreement.

The 2015 Agreement expressly states: “Attorneys’ Client for purposes of this engagement is the person(s), entity or entities identified herein. Unless expressly agreed. Attorneys are not undertaking the representation of any related or affiliated person or entity, nor any family member, parent corporation or entity, subsidiary, or affiliated corporation or entity, nor any of Client’s officers, directors, agents, partners or employees.” (2015 Agreement, § 12.) Based upon the identification of parties the 2015 Agreement in section 1 and the express limitation set forth in section 12, the court concludes that Rodriguez is not a party to the 2015 Agreement.

“ ‘ “There are circumstances in which nonsignatories to an agreement containing an arbitration clause can be compelled to arbitrate under that agreement. As one authority has stated, there are six theories by which a nonsignatory may be bound to arbitrate: ‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.’ ” ’ [Citations.]” (Cohen, supra, 31 Cal.App.5th at p. 859.)

“[C]ourts generally do not compel corporate officers and directors to arbitrate claims arising from contracts signed in their representative capacities. [Citations.] In such cases, even if the officers and directors acted as agents for the entities they represented, under ordinary rules of contract and agency law a representative who unambiguously signs a contract as a corporate officer or agent is not a party to the contract in his or her personal capacity.” (Cohen, supra, 31 Cal.App.5th at p. 861.) Although the petition and complaint alleges that Rodriguez is the alter ego of the other respondents, RFB does not provide evidence that Rodriguez should be deemed a party to the 2015 Agreement other than his signature and position as president of the entity parties. In the absence of evidence that Rodriguez is the alter ego of the entity respondents or other basis for deeming him personally a party to the 2015 Agreement, the Court finds that Rodriguez is not individually subject to the 2015 Agreement’s arbitration provision. (See Cohen, supra, 31 Cal.App.5th at pp. 866–867 & fn. 16.)

Rodriguez is, however, expressly a party to the 2009 Agreement. Disputes over legal services rendered arising under the 2009 Agreement to Rodriguez are subject to the 2009 Agreement’s arbitration provision. The remaining issue is whether legal services rendered for the entity respondents prior to the 2015 Agreement or for Rodriguez outside of the “Kellogg Avenue Project improper precondemnation activities by City of Goleta” are subject to the 2009 Agreement. From 2009 to December 2011, when HR was formed, it appears that all legal services would have only been performed for Rodriguez and not for any entity. According to Fox, following the formation of HR in December 2011, Rodriguez agreed that the work performed for HR was work for Rodriguez pursuant to the 2009 Agreement. (Fox decl., ¶ 4.) In opposition, Rodriguez states that there was never any subsequent written agreement between Rodriguez and RFB modifying the 2009 Agreement and that RFB also did legal work for Rodriguez that did not pertain to the “Kellogg Avenue Project improper precondemnation activities by City of Goleta.” (Rodriguez decl., ¶¶ 6, 7.)

These two assertions are not inherently contradictory. Rodriguez may well have agreed orally that work performed for HR was to be deemed as within the scope of the representation of Rodriguez, and subject to the terms, set forth in the 2009 Agreement. Rodriguez does not deny the agreement asserted by Fox. Consistent with Rodriguez’s understanding that work for HR between 2011 and 2015 fell within the scope of the 2009 Arbitration provision is Rodriguez’s acquiescence to arbitration from August 2019 until Rodriguez retained counsel in November 2019. The Court resolves this evidence, to the extent of its conflicting inferences, and finds that the parties agreed that legal services performed for HR up through the 2015 Agreement are subject to the terms of the 2009 Agreement, including the arbitration agreement. The integration clause of the 2015 Agreement causes the 2015 Agreement to supersede the 2009 Agreement as to HR from and after the effectiveness of the 2015 Agreement.

In summary up to this point, the Court finds that:

(1) Rodriguez has agreed to arbitrate disputes arising out of legal services for Rodriguez in connection with or in aid of the “Kellogg Avenue Project improper precondemnation activities by City of Goleta,” which services were performed at any time;

(2) Rodriguez and HR have agreed to arbitrate disputes arising out of legal services performed for HR, regardless of subject matter, which services were performed from the formation of HR on December 22, 2011, to the effective date of the 2015 Agreement on May 20, 2015; and,

(3) HR, UP, and USS, have agreed to arbitrate disputes arising out of legal services performed for HR, UP, or USS, regardless of subject matter, which services were performed from and after the effective date of the 2015 Agreement on May 20, 2015.

There is insufficient evidence to show the existence of an arbitration agreement covering other disputes to the extent that such other disputes fall outside of these categories.

Both parties address the issue of the effect of the Court determining that some, but not all, of the claims asserted in the petition and complaint are subject to arbitration but some are not.

RFB argues that the Court should stay the action pending disposition of the arbitration. “If a court of competent jurisdiction … has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. [¶] … [¶] If the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.” (Code Civ. Proc., § 1281.4.)

Respondents argue that the Court should refuse to enforce the arbitration provisions pursuant to Code of Civil Procedure section 1281.2, subdivision (c) (arbitration is to be ordered unless the court determines that “[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.”).

“However, finding that there is a possibility of inconsistent rulings on common questions does not conclude the analysis under section 1281.2, subdivision (c). … [T]he statute gives the court several options, including denying the petition for arbitration, staying the arbitration pending disposition of nonarbitrable claims in the court, or staying the litigation pending completion of the arbitration. [Citation.]

What the trial court chooses to do in this situation is a matter of its discretion, guided largely by the extent to which the possibility of inconsistent rulings may be avoided.” (Metis Development LLC v. Bohacek (2011) 200 Cal.App.4th 679, 692–693.)

From the parties’ arguments and supporting evidence, it is unclear to what extent, if any, there remain disputes raised in the petition and complaint that are outside the scope of items for which the Court has determined that arbitration agreements exist. As a result, it is difficult to determine the extent, if any, that the generic issues of possibly inconsistent rulings raised by respondents continue to exist. Nevertheless, the Court has considered respondents’ arguments but finds that the possibility for inconsistent rulings here are not substantial and, to whatever extent such disputes may exist, the possibility of conflicting rulings would be essentially avoided by staying this action pending disposition of the arbitration.

Consequently, the Court will grant the petition to compel arbitration as to the respondents and subject matter as set forth above and will stay this action pending disposition of the arbitration. Any issues not resolved by the arbitration will be addressed following completion of the arbitration.

Respondents filed evidentiary objections to the declaration of Randall Fox. The Court overrules objections 1, 3, 4, 5, 6, 7, and 10, and sustains objections 8, and 9. The Court notes that the objection “argumentative” is wholly misplaced here. That objection is an objection to the form of a question, not to statements made in a declaration: “ ‘An argumentative question is designed to engage a witness in argument rather than elicit facts within the witness’s knowledge.’ [Citation.] People v. Pearson (2013) 56 Cal.4th 393, 435–436.) Moreover, the citation provided for this objection, People v. Guerra (2006) 37 Cal.4th 1067, is unhelpful as it is a citation to a 90 page decision without a pinpoint citation as to where within those 90 pages the relevant discussion takes place. With respect to objections relating to personal knowledge, the evidence provided is sufficient to show personal knowledge of the statements made. With respect to objection 2, the objection is overruled as to the entities being owned and operated by Rodriguez as those statements reflect Fox’s (and hence RFB’s) understanding of Rodriguez’s capacity in dealing with RFB. That objection is sustained as to legal conclusion of alter ego.