Filed 4/28/20 Artisan Cheese Gallery, LLC v. Artisan Cheese Gallery, Inc. CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

ARTISAN CHEESE GALLERY, LLC,

Plaintiff and Respondent,

v.

ARTISAN CHEESE GALLERY, INC., et al.,

Defendants and Appellants.

B295159

(Los Angeles County

Super. Ct. No. EC068454)

APPEAL from an order of the Superior Court of Los Angeles County, Ralph C. Hofer, Judge. Affirmed.

Law Offices of Jeffrey M. Cohon, Jeffrey M. Cohon and Kristina S. Keller for Defendants and Appellants.

John Sullivan for Plaintiff and Respondent.

__________________________

 

INTRODUCTION

In 2015, defendants Artisan Cheese Gallery, Inc. (the Corporation) and Shelley Janson (collectively, Buyers) purchased a retail wine and cheese store (the Business) from plaintiff Artisan Cheese Gallery, LLC (Seller). Following the sale, financial disputes arose. To resolve their disputes, the parties participated in a mediation before the Honorable Richard Stone (Ret.). The mediation resulted in a settlement agreement, which included a provision stating: “Any dispute under this Agreement shall be resolve[d] by the Honorable Richard Stone, Judge Retired in the most expeditious way possible.”

The settlement agreement did not provide the hoped-for finality, and further disputes did in fact arise. After a series of e-mails between the parties and Judge Stone about reimbursements the Buyers claimed they were owed and payments Seller claimed it was owed, Seller filed the underlying complaint asserting a set of alleged breaches by Buyers. Buyers filed petitions to compel arbitration as to their reimbursement claims (which were not part of Seller’s complaint), and requested that Seller’s lawsuit be stayed until Buyers’ claims were resolved.

The trial court declined to compel arbitration, finding the settlement agreement provided for mediation of future disputes prior to litigation, and not arbitration. As it did not order arbitration, the trial court also refused to stay the proceedings before it.

Buyers now appeal the denial of arbitration and their stay request. We affirm, but on a different ground than the one relied upon by the trial court. In our view, the settlement agreement’s alternative dispute resolution provision—which says only that Judge Stone will “resolve” future disputes—is too vague to indicate agreement on arbitration or any other particular alternative resolution procedure.

BACKGROUND

A. Initial Dispute and Resulting Settlement Agreement

In April 2015, Buyers bought the Business from Seller for $485,000 up front, along with a secured promissory note for $100,000 to be paid by Buyers to Seller over time. Janson, who is the sole shareholder of the Corporation, issued a personal guaranty for the promissory note. In addition, Buyers agreed to purchase Seller’s perishable inventory, in an amount to be determined prior to the close of escrow, subject to a separate promissory note and security agreement securing the same.

After the sale was finalized, Seller disclosed to Buyers $46,000 in gift certificates Seller had sold to the public before the sale of the Business. The parties disputed how many of the gift certificates were unredeemed as of the time of the sale. After assuming control of the Business and gaining access to its books and records, Buyers suspected Seller had made other material financial misrepresentations during the parties’ negotiations. Buyers asserted they would not have bought the Business, or at the very least, they would not have paid what they paid for it, had they known about the gift certificates and other alleged misrepresentations. Disputing the amount they owed Seller, Buyers failed to make any payments under the promissory note and failed to pay for the existing inventory at the time of the sale.

The parties agreed to mediate their disputes, and retained Judge Stone. The mediation took place on September 28, 2015, and resulted in a stipulation for settlement (Stipulation), which provided for the restructuring of the original promissory note, the creation of a new promissory note, and Seller’s reimbursement (subject to Seller’s approval) of gift certificates sold before May 7, 2015 that were redeemed by the Business. The Stipulation stated that if Seller did not approve of a gift certificate submission, Seller was to submit its objection “to Richard Stone for consideration [and] ruling.” The Stipulation further provided that the parties agreed Buyers would withhold $10,000 of what they owed under the promissory notes until December 31, 2016, “as a hold-back of funds to cover potential redeemed certificates sold prior to [May 7, 2015].”

The Stipulation was later supplemented by a more comprehensive agreement entitled “Confidential Settlement and Mutual Releases Agreement, Note Modification and Agreement to Create New Note” (Settlement Agreement). The Stipulation was attached as an exhibit to the Settlement Agreement, and incorporated by reference.

The Settlement Agreement detailed the restructured original promissory note (the First Note) and the creation of the second promissory note for $5,000 (the Second Note). The Settlement Agreement included a holdback of the last $10,000 payable on the note obligations to cover any future gift certificate disputes. That holdback expired February 15, 2017, after which time any remaining funds were to be given to Seller.

With respect to the unredeemed gift certificates sold before May 7, 2015, the Settlement Agreement provided that “[Seller] agrees to reimburse Corporation, and [Seller’s principals] to personally guarantee, [sic] same, subject, however[,] to [Seller]’s approval. Should [Seller] dispute Corporation’s claimed reimbursement, the parties agree to submit such dispute to Richard Stone, Judge (Retired) for resolution.” The Settlement Agreement further provided that “[a]ny dispute under this Agreement shall be resolve[d] by the Honorable Richard Stone, Judge Retired in the most expeditious way possible. To this end, the parties agree that any [and] all disputes concerning the Gift Certificates may be handled telephonically if desired by Judge Stone. Each party shall pay half of the cost of Judge Stone’s time subject to reallocation by the Judge.”

B. Post-settlement Agreement Dispute

On January 25, 2017, one month prior to expiration of the holdback, Buyers sent a letter to Judge Stone requesting a $3,319.56 reimbursement from Seller for gift certificates allegedly sold before May 7, 2015, that Buyers had redeemed. The letter attached the hard copies of the gift certificates at issue. For reasons that are unclear from the record, Judge Stone did not respond to the letter. Janson alleges she called Judge Stone on February 24, March 28, and April 5 to follow up on her request, but that she was not able to reach him. She also e-mailed Judge Stone on April 5 and April 18, asking him to let her know how to proceed in order to credit the gift certificates she redeemed. Judge Stone did not respond to either e-mail. Janson e-mailed Judge Stone again on May 4, 2017, and Judge Stone responded saying he had received the documents, and would review them.

Judge Stone e-mailed both parties on May 29, 2017, asking that Janson outline her position and provide any supporting documentation regarding her claim. Janson responded that same day, outlining the issue, and explaining she had sent the hard copies of the gift certificates to Judge Stone on January 25. Judge Stone responded by asking Janson to send all the documentation to Seller as well.

On June 13, 2017, Seller responded to the e-mail chain, saying Janson had not yet provided Seller with any documentation of her claims. Seller further asserted that, at the time the Business was sold, the outstanding amount of gift certificates was $800, so if Janson had redeemed over $3,000 in gift certificates sold before May 7, 2015, she was redeeming fake certificates. Seller also expressed concern at Janson’s failure to pay on the promissory notes for the previous three months. Judge Stone responded by again requesting that Janson send Seller copies of the gift certificates at issue.

Janson wrote back, arguing the gift certificates she had redeemed were real certificates purchased before the May 7, 2015 cutoff. Judge Stone, for the third time, responded by asking Janson to send Seller copies of the gift certificates. It is unclear whether Janson ever did.

Buyers continued to fail to make payments on both the First and Second Notes. On August 17, 2017, Seller’s counsel e-mailed Janson, telling her Seller would be taking legal action unless she agreed to pay the remaining balances due. On August 23, 2017, after not hearing back from Janson, Seller’s counsel e-mailed Judge Stone, noting Judge Stone was “to officiate over further proceedings,” and requesting “a further mediation.” Seller’s counsel then followed up with Judge Stone’s case manager, telling her that if Janson did not cooperate, “I will file suit and we will litigate.”

On September 20, 2017, Judge Stone’s case manager e-mailed Janson to schedule a hearing. Janson never responded.

C. Petitions to Compel Arbitration and Stay Proceedings

On April 25, 2018, Seller filed a complaint against Buyers, asserting causes of action for breach of contract, fraud and deceit, common count (money lent), breach of the implied covenant of good faith and fair dealing, and possession of personal property. Seller sought damages for the unpaid balance on both promissory notes—$68,183.45 on the First Note, with interest thereon at the rate of $9.34 per day from and after April 1, 2018, and $5,231.27 on the Second Note, with interest thereon at the rate of $0.72 per day from and after April 1, 2018. None of the causes of action sought relief related to gift certificates.

On June 19, 2018, the Corporation and Janson filed separate petitions to compel arbitration of the gift certificate dispute. They argued that both the Stipulation and the Settlement Agreement provided for arbitration, because, although neither document contained the word “arbitration,” the Stipulation provided that Seller had to submit to Judge Stone any disputed request for reimbursement for Judge Stone’s “consideration and ruling,” and the Settlement Agreement provided that Judge Stone was to resolve “any dispute” under the Settlement Agreement. Buyers argued they were entitled to an arbitration before Judge Stone on Janson’s pending request for reimbursement of the gift certificates before Seller could proceed with its lawsuit. Buyers also sought a stay of the proceedings pending the court’s ruling and the completion of arbitration.

Before responding to the petitions, Seller’s counsel e-mailed Buyers’ counsel, asking why Buyers had filed a petition to compel arbitration when they had been ignoring Seller’s attempts to mediate the gift certificate dispute with Judge Stone, and whether Buyers really wanted to go back before Judge Stone. Buyers’ counsel never responded.

On November 2, 2018, Seller opposed the petitions to compel arbitration, arguing the Agreement’s language should be interpreted to mean the parties sought to use Judge Stone to mediate future disputes and not arbitrate them. Seller explained that Buyers never requested a hearing with Judge Stone, but rather, that Seller demanded Janson return to mediation with Judge Stone and Janson ignored that demand.

The trial court denied the petitions to compel arbitration, finding Buyers failed to meet their initial burden of establishing that an agreement for arbitration existed. The trial court held that all the Settlement Agreement required was for the parties to attempt to mediate before filing litigation.

Buyers timely appealed. We have jurisdiction pursuant to Code of Civil Procedure section 1294, subdivision (a), which permits an aggrieved party to appeal from an order denying a petition to compel arbitration.

DISCUSSION

A. Standard of Review

“ ‘There is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court’s order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court’s decision rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]’ [Citation.] Interpreting a written document to determine whether it is an enforceable arbitration agreement is a question of law subject to de novo review when the parties do not offer conflicting extrinsic evidence regarding the document’s meaning. [Citation.]” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 60.) The parties here dispute the relevance and inferences to be drawn from the extrinsic evidence, but not the extrinsic evidence itself.

B. Relevant Legal Principles Regarding Arbitration

“Our Legislature ‘has expressed a “strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.” ’ [Citation.]” (Bunker Hill Park Ltd. v. U.S. Bank National Assn. (2014) 231 Cal.App.4th 1315, 1325.) However, “[t]he ‘ “ ‘ “ ‘ . . . policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate.’ ” [Citation.] “Although ‘[t]he law favors contracts for arbitration of disputes between parties’ [citation], ‘ “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate . . . .” ’ [Citations.]” ’ [Citation.] ‘Absent a clear agreement to submit disputes to arbitration, courts will not infer that the right to a jury trial has been waived.’ [Citation.]” [Citation.]’ [Citation.]” (Avery v. Integrated Healthcare Holdings, Inc., supra, 218 Cal.App.4th at p. 59.)

“Arbitration is . . . a matter of contract. [Citation.]” (Avery v. Integrated Healthcare Holdings, Inc., supra, 218 Cal.App.4th at p. 59.) Accordingly, to determine whether the parties formed a valid agreement to arbitrate, we apply California contract law, aiming “ ‘ “to give effect to the parties’ mutual intent at the time of contracting.” ’ ” (Id. at pp. 59-60.) “ ‘Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,” . . . controls judicial interpretation. [Citation.]’ [Citation.]” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) If the written provisions are ambiguous, however, “ ‘extrinsic evidence may be considered to ascertain a meaning to which the instrument’s language is reasonably susceptible.’ ” (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.) If there is no evidence from either the face of the agreement or extrinsic evidence “ ‘establishing a manifestation of assent to the “same thing” by both parties, then there is no mutual consent to contract and no contract formation.’ ” (Bowers v. Raymond J. Lucia Companies, Inc. (2012) 206 Cal.App.4th 724, 733.) “A settlement agreement, like any other contract, is unenforceable if the parties fail to agree on a material term or if a material term is not reasonably certain.” (Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, 1622.)

Section 1281.2 requires courts to order arbitration “[o]n 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,” unless “(a) [t]he right to compel arbitration has been waived by the petitioner; or [¶] (b) [g]rounds exist for rescission of the agreement.” Accordingly, the trial court’s first step in ruling on a petition to compel arbitration is deciding whether a valid agreement to arbitrate exists. The party petitioning to compel arbitration bears the initial burden of proving, by a preponderance of the evidence, that such an agreement exists. (Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1230.) Once the petitioning party has satisfied its burden, the burden shifts to the party opposing arbitration “to ‘produc[e] evidence of, and prov[e] by a preponderance of the evidence, any fact necessary to the defense.’ [Citation.]” (Ibid.)

C. The Trial Court Was Correct in Denying Buyers’ Motion to Compel Arbitration

Buyers argue the trial court erred in denying their petitions to arbitrate the gift certificate claim. We disagree.

Section 4.9 of the Settlement Agreement states that “[a]ny dispute under this Agreement shall be resolve[d] by the Honorable Richard Stone, Judge Retired in the most expeditious way possible.” Although the parties correctly note that the failure to include the term “arbitration” is not dispositive (e.g., Painters Dist. Council No. 33 v. Moen (1982) 128 Cal.App.3d 1032, 1036), a supposed arbitration agreement must delineate some terms clearly establishing the parties’ agreement to arbitrate. (See Avery v. Integrated Healthcare Holdings, Inc., supra, 218 Cal.App.4th at p. 59.)

Section 4.9 does not contain any such terms, nor are such terms found elsewhere in the Settlement Agreement. The Settlement Agreement fails to specify which alternative dispute resolution (ADR) vehicle the parties agreed to employ, and fails to explain what procedures apply to such ADR. Although the parties brief this appeal as if arbitration or mediation are the only two options that could be implied from the contractual language, the universe is not so limited. Other ADR vehicles would also comply with the parties’ agreement that Judge Stone should resolve their disputes. (See, e.g., Cal. Const., art. VI, § 21 [temporary judge to resolve parties’ disputes]; § 638 [referee to resolve parties’ disputes].) These other ADR vehicles, though still providing for a decision by a neutral, involve different rules and different appellate rights and procedures. The provision simply stating Judge Stone is to “resolve” any further dispute provides no insight as to what role the parties envisioned for Judge Stone in the future, and is too vague to be enforced.

That is especially true here given that Judge Stone previously acted as a mediator. Parties “may agree that the same person may first act as mediator and, if he or she fails in this task, act as the arbitrator. Whether or not this arbitrator (née mediator) may consider facts presented to him or her during the mediation would also have to be specified in any such agreement.” (Lindsay v. Lewandowski, supra, 139 Cal.App.4th at p. 1625.) The Settlement Agreement here contains no such guidance about what use, if any, Judge Stone can make of information subject to the mediation privilege. (See Evid. Code, § 1119.) As was the case in Lindsay, the lack of specification as to what Judge Stone could consider in resolving future disputes given his prior mediation role “underscore[s] how uncertain the terms of the instant ‘agreement’ were.” (Lindsay, supra, at p. 1625.)

Nor does the parties’ post-Settlement Agreement course of performance shed any light on what the parties understood to be provided by the Settlement Agreement. While post-agreement course of performance evidence can be used to aid contract interpretation, such evidence is relevant “when the parties perform under a contract, without objection or dispute,” because “[i]f the parties to a contract have, for years, harmoniously performed the contract in a way that reflects a particular, reasonable understanding of the terms of the contract, that performance is relevant to determining the meaning of the contract.” (Employers Reinsurance Co. v. Superior Court (2008) 161 Cal.App.4th 906, 922.) In post-Settlement Agreement communications prior to the lawsuit, Buyers were unrepresented, and asked Judge Stone repeatedly “how to proceed” with obtaining reimbursement of the gift certificates. They did not explicitly ask Judge Stone for either a mediation hearing or an arbitration hearing. Seller’s counsel later acknowledged Judge Stone was “to officiate over further proceedings,” and requested a further mediation. Seller’s counsel also indicated he would take legal action if Buyers refused to mediate. These communications, representing the parties’ individual post-hoc construction of the Agreement, do not illuminate any shared understanding of the Agreement.

Given the uncertainty of the terms of the Settlement Agreement, and the lack of evidence showing the parties’ mutual assent to arbitrate, we find the trial court did not err in ruling the parties had not entered into a valid agreement to arbitrate and thus denying Buyers’ motion to compel arbitration. Because the parties are not required to arbitrate, the lawsuit need not be stayed.

DISPOSITION

The order denying Buyers’ petitions to compel arbitration is affirmed. Seller is entitled to its costs on appeal.

NOT TO BE PUBLISHED

WEINGART, J.*

We concur:

CHANEY, J.

BENDIX, Acting P. J.