Filed 1/9/20 Fish IP Law, LLP v. Tsang CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

FISH IP LAW, LLP,

Plaintiff, Cross-Defendant,
and Respondent,

v.

MEI TSANG,

Defendant, Cross-Complainant,
and Appellant,

v.

ROBERT D. FISH,

Cross-Defendant and Respondent.

G056201

(Super. Ct. No. 30-2017-00942416)

O P I N I O N
Appeal from an order of the Superior Court of Orange County, Melissa R. McCormick, Judge. Affirmed.

Grant, Genovese & Baratta, Lance D. Orloff and Jason S. Roberts for Defendant, Cross-Complainant and Appellant.

Fish IP Law, Ron D. Fish, and John D. van Loben Sels for Plaintiff, Cross Defendants and Respondents.

* * *

Mei Tsang appeals the trial court’s order denying her petition to compel arbitration. Tsang sought arbitration under a clause in a written partnership agreement that she and her law partner Robert D. Fish executed to form Fish & Tsang LLP (F&T LLP). The court denied the petition based on a “Termination of Partnership Agreement” Tsang and Fish signed in December 2016, which stated that “the Partnership Agreement entered into between them as of January 1, 2014 is void ab initio.” The court found no basis to conclude that “an agreement the parties have agreed was void ab initio remains enforceable” to require arbitration “despite the voiding of the agreement that contained the arbitration provision.”

Tsang contends the termination agreement only voided the partnership agreement prospectively, not retroactively. As she did below, Tsang cites extrinsic evidence to support her interpretation, including her declaration and the parties’ continuing “use” of the partnership agreement. The court received and considered this extrinsic evidence. The court then concluded Tsang’s evidence did not outweigh the plain terms the parties chose “with a specific meaning (‘void ab initio’) [so as to render their termination agreement] reasonably susceptible to a different, contrary interpretation (‘void going-forward’).”

It is the trial court’s responsibility to weigh the evidence. Tsang’s evidence did not incontrovertibly and as a matter of law outweigh the clear terms the parties chose. We therefore affirm the court’s ruling.

FACTUAL AND PROCEDURAL BACKGROUND

The law firm Fish formed after Tsang’s departure, Fish IP Law, filed a complaint in superior court against Tsang in September 2017. The complaint alleged four causes of action: conversion, breach of fiduciary duty, breach of oral contract, and unjust enrichment. In response, Tsang wrote a letter to Fish and to Fish IP Law, as F&T LLP’s successor, to request indemnification under the partnership agreement’s indemnity provision, “including attorneys’ fees” to defend against the lawsuit. She also requested arbitration.

The record does not include any response by Fish or Fish IP Law to Tsang’s letter. Tsang then filed a petition to compel arbitration based on the partnership agreement’s arbitration clause, which extended to: “Any controversy among the Partners involving the construction or application of any provision of this Agreement . . . .” Simultaneously with her petition, Tsang filed cross-claims against Fish and Fish IP Law for breach of contract, breach of fiduciary duty, money had and received, accounting, and indemnification, all of which she asserted were also subject to arbitration.

In her declaration which she filed with her petition, Tsang acknowledged the 2016 termination agreement, but asserted that her “equity partnership with F&T LLP” terminated with that agreement, and the Partnership Agreement merely “became void” at that time. (Italics added.) Tsang stated in her declaration that, following the termination agreement, she “stayed on as a non-equity partner of F&T LLP” and “was treated as a partner by Fish and [by] F&T LLP.” She continued to work at the firm for another six months until she resigned on June 19, 2017. She agreed to Fish’s request “that I stay for two weeks . . . to effect a smooth transition.” But the next day, “Fish elected to terminate the relationship” immediately.

Tsang observed in her declaration that she received “K-1s from 2014 through 2015” from F&T LLP while she was an equity partner, and one “in October 2017, after the Complaint was filed, . . . for fiscal year 2016.” Fish and Tsang had signed the termination agreement on December 15, 2016, specifying that same day was its effective date.

Fish IP Law opposed Tsang’s petition on grounds that the termination agreement specified the partnership agreement was “void ab initio.” The termination agreement is brief. It is entitled, “Termination of Partnership Agreement of Fish & Tsang LLP.” (Bold and all caps removed.)

The termination agreement’s three substantive paragraphs, each consisting of a single sentence, state: “Each of Fish and Tsang recognize that Tsang is not an equity partner in the law firm of Fish & Tsang, LLP, and that the Partnership Agreement entered into between them as of January 1, 2014 is void ab initio. [¶] Tsang will still be a non equity partner. [¶] Fish will indemnify and hold Tsang harmless as to all lease and credit obligations to which Tsang has entered into on behalf of the Partnership.”

At the hearing on Tsang’s petition, the trial court focused on the ‘“void ab initio”’ language in the termination agreement. The court observed that under Civil Code section 1645, “[T]echnical words are to be interpreted as they’re usually understood by persons in the profession, unless they’re clearly used in a different sense.” The court indicated it was receptive to “extrinsic evidence that [it] should consider . . . to conclude that the words in this agreement mean something other than they do when you read the document . . . .” Specifically, that “what these two lawyers actually meant . . . was not that they were rendering the January 2014 partnership agreement a nullity, but rather, when they used the term ‘void ab initio,’ they meant something else . . . .”

Counsel for Tsang focused on the K-1 form her former firm sent Tsang in October 2017. Counsel argued the form was evidence “Tsang was still asked to pay taxes as if she was still a partner and still looked to [meet] those responsibilities, tax responsibilities.” Counsel argued this demonstrated the parties did not intend the termination agreement to mean “that the partnership never existed at all.” Tsang’s counsel also pointed vaguely to “other interactions between the partners to suggest that she was still a partner during that time,” presumably meaning “still a partner” during the period on which Fish based his breach of fiduciary duty claim against her, as we discuss more fully below.

After taking the matter under submission, the trial court issued a detailed decision. The court observed that the party petitioning to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Little v. Pullman (2013) 219 Cal.App.4th 558, 565.) The court found the evidence established Tsang and Fish “agreed to void the January 1, 2014 Partnership Agreement ‘ab initio’ and, moreover, did so in a document that does not contain an arbitration provision.” The court concluded that in voiding the “Partnership Agreement ‘ab initio,’ they agreed that the Partnership Agreement never existed.”

The court observed that “[e]xtrinsic evidence is admissible to prove a meaning to which a contract is reasonably susceptible.” The court considered, but did not find persuasive, Tsang’s declaration that “the Partnership Agreement ‘became void’ as a result of the Termination of Partnership Agreement and [her argument] that if the [latter] voided the Partnership Agreement, ‘it was on a going-forward basis.’” The court also considered the “K-1 tax document,” but concluded Tsang’s extrinsic evidence “does not render a phrase with a specific meaning (‘void ab initio’) reasonably susceptible to a different, contrary interpretation,” particularly where Fish and Tsang “both . . . are lawyers.”

The court also found that though termination of the partnership agreement ab initio may have unspecified, “allegedly unintended and/or negative consequences (something about which the court makes no findings),” this “does not warrant the court’s disregarding the language of the Termination of Partnership Agreement.” The court denied Tsang’s petition. She now appeals.

DISCUSSION

Tsang contends the trial court erred by not finding that she and Fish only voided their January 1, 2014 partnership agreement prospectively from the date of their termination agreement. She asserts the court erred by finding the termination applied retroactively. Tsang argues Fish’s “use” of the agreement as the basis for Fish IP Law’s complaint against her for breach of fiduciary duty reveals she and Fish did not intend the ab initio term to have the construction the court gave it. In other words, because Fish IP Law’s claim against Tsang as a fiduciary relies on the partnership agreement as the source of the duty of care Tsang allegedly breached—as does her similar fiduciary duty counterclaim against Fish—this demonstrates she and Fish intended the partnership agreement, including its arbitration provision, to govern any claims against each other.

In essence, Tsang argues extrinsic evidence about the way the parties treated the termination agreement (i.e., as grounds for competing legal claims), and Tsang’s declaration regarding her understanding that the partnership agreement only “became void” with the signing of the termination agreement, required the court to grant her petition to compel arbitration. She argues the partnership agreement’s arbitration clause remained valid because the partnership itself effectively remained valid and intact until it was terminated in 2016.

A petition to compel arbitration is a suit in equity seeking specific performance of a contract. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) In deciding whether the parties agreed to arbitrate their dispute, state rules of contract interpretation apply to evaluate whether the parties objectively intended to submit the issue to arbitration. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890.) “When conflicting extrinsic evidence was not offered below, we apply a de novo, or independent, standard of review on appeal from a trial court’s determination of whether an arbitration agreement applies to a particular controversy.” (Ibid.)

However, where a party’s petition depends on extrinsic evidence, “the appellate court must defer to a trial court’s assessment of the extrinsic evidence, as it defers to other factual determinations.” (Solis v. Kirkwood Resort Co. (2001) 94 Cal.App.4th 354, 361.) When interpretation of a contract depends on disputed extrinsic evidence casting doubt on the meaning of a contract, “an appellate court will uphold any reasonable construction of the contract by the trial court.” (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 913.) The substantial evidence standard of review governs interpretation of an arbitration clause based on conflicting extrinsic evidence. (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59.) The deference implicit in this standard presents an “enormous burden” for the appellant to surmount. (People v. Sanchez (2003) 113 Cal.App.4th 325, 330.)

The challenge is even more difficult in this case. When, as here, the party challenging the trial court’s interpretation of the evidence bore the burden of proof, the question for the reviewing court is whether the evidence required a decision in the appellant’s favor below as a matter of law. (Roesch v. De Mota (1944) 24 Cal.2d 563, 570-571; e.g., Vieira Enterprises, Inc. v. McCoy (2017) 8 Cal.App.5th 1057, 1074.) Tsang does not meet that high burden.

Here, the court concluded Tsang’s evidence concerning her interpretation of the termination agreement did not render the “phrase with a specific meaning (‘void ab initio’) reasonably susceptible to a different, contrary interpretation (‘void going-forward’).” The court relied on the fact that both Tsang and Fish are lawyers and on Civil Code principles governing the interpretation of contracts. Those principles include that, “if possible,” “the intention of the parties is to be ascertained from the writing alone” (Civ. Code, § 1639) and technical words “are to be interpreted as usually understood by persons in the profession . . . , unless clearly used in a different sense” (Civ. Code, § 1645).

“California recognizes the objective theory of contracts [citation], under which ‘[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation [citation]. The parties’ undisclosed intent or understanding is irrelevant to contract interpretation.” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 956.) If Fish had agreed to the meaning Tsang gave to the phrase “void ab initio,” their mutual intent would control because contracts must be “interpreted [so] as to give effect to the mutual intention of the parties as it existed at the time of contracting . . . .” (Civ. Code, § 1636.) But he did not. Fish objected to Tsang’s proposed construction.

“Ab initio” is a Latin phrase meaning “from the beginning,” and, consequently, “‘Void ab initio’ means a contract is null from the beginning, as from the first moment when the contract is entered into.” (17A C.J.S. Contracts, § 169 & fn. 1.) Tsang’s construction of the phrase is directly contrary to the meaning evident in the phrase’s Latin origin and established in legal encyclopedias and similar resources. Therefore, it was the trial court’s prerogative to weigh her conflicting evidence on the meaning of the phrase in the parties’ termination agreement. Tsang contends the “termination agreement’s term ‘void ab initio’ capably means void prospectively.” (Capitalization adjusted and bold removed.) Even if we were to conclude the phrase as used in the agreement could conceivably be construed as Tsang urges, the court disagreed and gave her evidence little weight, as it was entitled to do. We cannot second guess the trial court on this issue.

The court did not err in denying arbitration because the arbitral agreement on which Tsang relied was “void ab initio.” Measured against the phrase’s literal meaning, its legal meaning, the fact both parties were lawyers, and interpretative principles requiring the court to give priority to the parties’ written terms in their technical sense—instead of to Tsang’s personal, undisclosed interpretation—we believe the court reasonably denied Tsang’s petition. Like the trial court, we need not decide what effect, if any, Tsang and Fish’s shared decision to void their partnership agreement from its inception may have on the viability or resolution of their breach of fiduciary duty claims against each other. We express no opinion on that issue or any other that may arise in the trial court. We hold only that the court did not err in denying arbitration.

DISPOSITION

The trial court’s order denying arbitration is affirmed. Respondents are entitled to recover their costs on appeal.

GOETHALS, J.

WE CONCUR:

O’LEARY, P. J.

ARONSON, J.