Cutler v. Azur Pharma International III Limited
Filed 1/13/14 Cutler v. Azur
Pharma International III Limited CA2/8
OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a),
prohibits courts and parties from citing or relying on opinions not certified
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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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.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 EIGHT
NEAL R.
CUTLER,
Plaintiff and Respondent,
v.
AZUR PHARMA
INTERNATIONAL III LIMITED et al.,
Defendants and Appellants.
B245306
(
Super. Ct. No.
BC471775)
APPEAL from
a judgment of the Superior Court of Los
Angeles County,
Steven J. Kleifield, Judge.
Affirmed.
Simpson
Thacher & Bartlett, Michael D. Kibler, Michael G. Freedman Rachel N. Agress
for Defendants and Appellants.
Arnold & Porter, John D.
Lombardo, E. Alex Beroukhim and Sean M. SeLegue for Plaintiff and Respondent.
___________________________
An arbitrator issued a final
arbitration award ruling that a dispute is not
scope of the applicable arbitration agreement.
The trial court denied a petition to vacate the arbitrator’s award while
granting a petition to confirm the award.
We affirm the trial court’s confirmation decision because, regardless of
whether or not the arbitrator “correctly†ruled on the issue of arbitrability,
he did not “exceed his powers†within the meaning of the
issue of arbitrability, the arbitrator gave them a ruling on the issue. Confirmation is thus appropriate. (Moncharsh
v. Heily & Blase (1992) 3 Cal.4th 1, 13-28.)
FACTS
General
Background
Neal
R. Cutler, M.D. filed an action alleging claims for breach of two contracts and
related wrongs against Azur Pharma International III Limited.
pursuant to an arbitration clause contained in one of the contracts. Cutler opposed arbitration on the ground that
he was not a signatory to the contract with the arbitration clause. The trial
court entered an order compelling arbitration, ruling that Cutler, having
filed suit for relief based on the contract with the arbitration clause, was equitably
estopped from asserting that he was not bound by the arbitration clause.
At
an initial hearing in the arbitration forum, Cutler and Azur “agree[d] that the
Arbitrator may determine any issue of arbitrability or its scope.†The arbitrator thereafter issued a final
award in which he ruled that the parties’ disputes are not arbitrable because
they are outside the scope of the arbitration clause.
Cutler
filed a petition to confirm the arbitrator’s award; Azur a petition to vacate
the award. The trial court entered an
order confirming the arbitrator’s award, lifted a stay on litigation in the
court, and directed Azur to file a response to Cutler’s complaint. Azur filed an appeal, bringing to us for
review the trial court’s order confirming the arbitrator’s determination that
there will be no arbitration of the parties’ dispute on the substantive merits
of Cutler’s claims.
FazaClo
Cutler is a pharmaceutical investor and entrepreneur
who started non-party Alamo Pharmaceuticals, LLC. Through Alamo, Cutler developed “FazaClo,†a drug treatment for schizophrenic
patients.
In May 2006, Cutler sold his
interest in Alamo to Avanir Pharmaceuticals (a named
defendant in the trial court, but not appearing in the current appeal) under a contract
which is identified in the briefs on appeal alternatively as the “Unit Purchase
Agreement†or “UPA†or “Avanir Agreement.†Alamo then became a wholly owned subsidiary of Avanir. Avanir paid Cutler in the form of money and assumed
debt for his interest in Alamo. As
relevant to the current appeal, Avanir further agreed that Cutler would receive
“Contingent Payments†if revenue from certain FazaClo products reached defined
milestones by a specified date.
The Contingent Payments provisions in
the UPA required Avanir to provide Cutler with quarterly reports setting forth “in
reasonable detail†the net product revenues for each month of each fiscal
quarter. The quarterly reports were required
to be prepared “in accordance with GAAP [Generally Accepted Accounting
Principles] applied on a basis consistent with the preparation of [Avanir]’s
consolidated financial statements.â€
Azur Comes into the Picture
In July 2007, Avanir and defendant
and appellant Azur entered a contract which the parties identify alternatively as
the “Asset Purchase Agreement†or “APA†or “Azur Agreement.†Under the terms of the APA, Azur purchased
certain assets and assumed certain liabilities from Avanir and its subsidiary, Alamo, including the FazaClo brand.
Among the “Assumed Liabilities†that are identified in the APA are “the
UPA Payments,†which are defined to mean ‘the Contingent Payments . . . as
such terms are defined in the Unit Purchase Agreement,†which is defined to
mean “that certain Unit Purchase Agreement by and among [Avanir and Alamo] and certain other parties listed therein, dated as of May . . . 2006.â€
The APA consists of several separate
parts each labeled “Article.†For
example,
Article
I sets forth “Definitionsâ€; Article II sets for the terms for the “Purchase and
Sale of Assetsâ€; and Article III sets forth terms for the “Closing†of the APA.
Article IX of the APA sets forth
“Post-Closing Covenants.†Within Article
IX, Section 9.3 reads:
“Indemnification. [¶]
(a) Subject to the provisions of
this Article IX, after the closing, the Selling Parties [Avanir and
Alamo] shall indemnify and hold harmless Buyer [Azur] and its Affiliates and
Buyer’s and such Affiliates’ respective Representatives, and each of their
respective successors and assigns (collectively, the ‘Buyer Indemnified
Parties’) from and against all losses liabilities, damages, (excluding,
except as stated in the last paragraph of Section 9.9, consequential,
incidental, special or punitive damages), Actions, Claims, judgments,
injunctions, orders, decrees, rulings, settlements, costs, expenses (including
reasonable fees and expenses of counsel, consultants, experts and other
professional fees), demands, penalties, fines, interest and assessments
(collectively, ‘Damages’) incurred by the Buyer Indemnified Parties or
any of them arising from or as a result of: [¶] (iv) the indemnification obligations of the
Selling Parties under Section 3.3 and 6.8(f) hereof.â€
Section 9.3 further provides:
“(b)
IX, after closing, Buyer shall
indemnify and hold harmless each of the Selling Parties and their
Affiliates and the Selling Parties’ and such Affiliates’ Representatives, and
each of their respective successors and assigns (collectively, the ‘Seller
Indemnified Parties’) from and against all Damages as incurred by the Seller Indemnified Parties or any of
them arising from or as a result of: [¶] (iv) any Assumed
Liabilities.†(Italics added.)
Section 9.4 sets forth “Indemnification
Procedures,†and defines an “Indemnified Party†as a party “claiming
indemnification†under the APA “with respect to any Claims asserted against it
by an unaffiliated third-party (a ‘Third-Party Claim’),†and defines an
“Indemnifying Party†as “the party from whom indemnification is sought.†Other subdivisions within section 9.4 explain
the rules for giving notice of third-party claims, and defense of such claims.
Section 9.4(f) reads:
“If the
Indemnifying Party has disputed a Claim for indemnification (including any
Third-Party Claim), the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute. If the Indemnifying Party and the Indemnified
Party are unable to resolve such dispute regarded a Contested Amount within
third (30) days after delivery of the Dispute Notice, such dispute shall be
resolved by confidential binding arbitration as provided in Section 10.15. Neither party shall have the right to offset
any amounts owed to the other party for Damages such parties is otherwise
entitled to recover unless so determined by the arbitrator or such amount is an
Agreed Amount.â€
Section 9.7 reads:
“Exclusive
Remedy. From and after the Closing,
except for any equitable relief to which any party may be entitled or in the
case of actual fraud, the indemnification
provisions of . . . this Article IX shall be the sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement and no party shall pursue or seek to pursue any other
remedy. In furtherance of the foregoing,
Buyer hereby waives, to the fullest extent permitted under applicable Law, any
and all rights, Claims and causes of action it or any of its Affiliates may
have against the Selling Parties arising under or based upon any Law.†(Italics added.)
Also
within Article IX is section 10.15, which reads as follows:
“If any
controversy or claim arising out of or relating to this Agreement or any
Ancillary Agreement, or the breach thereof, cannot first be resolved by
the parties within thirty (30) days after the written notice thereof, then
either party may submit the controversy or claim to confidential binding
arbitration in accordance with the JAMS Comprehensive Arbitration Rules and
Procedures then in effect. The
arbitration will be conducted by one arbitrator, mutually selected by the
Indemnified Party and the Indemnifying Party; provided, however, that if the Indemnified Party and the Indemnifying
Party fail to mutually select an arbitrator within fifteen (15) Business
Days after the contested portion of the
indemnification claim is submitted to arbitration, then the arbitrator
shall be selected by JAMS in accordance with its Comprehensive Arbitration
Rules and Procedures then in effect. . . . The final
decision of the arbitrator shall be furnished in writing to
Party and include (a) the dollar amount of the award to
determination as to whether either party to the arbitration shall be required
to bear and pay all or a portion of the other party’s attorneys’ fees and other
expenses relating to the arbitration.†(Italics added.)
The APA defines “Claim†to mean “any
claim, demand, cause of action, chose in action, right or recovery or right of
set-off of whatever kind or description against any Person.†The APA also expressly identifies Cutler by
name as a third-party beneficiary of the APA entitled to “full rights of
enforcement as though such Person was a signatory to this Agreement with
respect to . . . the obligations relating to the Contingent
Payments [under the UPA].â€
Cutler’s Lawsuit
For a number of years after the APA
closed, Azur provided Avanir with quarterly reports concerning FazaClo product
sales, and Avanir, in turn, would forward the reports to Cutler. When Cutler had questions concerning the
quarterly reports, he would direct them to Avanir, and Avanir would forward the
questions to Azur. Over time, Cutler
began accepting reports directly from Azur, and sending inquiries directly to
Azur.
with FazaClo began to have growing expectations that competition from generic products
would be coming in the near future, and that this competition would close the
window for net revenues from FazaClo product sales to reach the “Contingent
Payment†milestones set forth in the UPA. During the same time frame, Cutler began demanding
more financial information from Azur, and, for the first time, he began questioning
Azur’s accounting practices and marketing decisions. Eventually, Azur offered to make its books
and records available at its offices for an audit by Cutler in accord with the
terms of the UPA.
title="">[3]
In October 2011, Cutler filed a
complaint against Azur and Avanir. Cutler’s
complaint alleges four causes of action, listed respectively, as follows: breach of contract against Avanir arising
from the UPA; breach of contract against Azur arising from the APA – with
Cutler expressly owed duties under that agreement; breach of the implied covenant
of good faith and fair dealing against both Avanir and Azur; and tortious
interference with contractual relations against Azur.
Arbitration Compelled
In December 2011, in Cutler’s court
case, Azur made a “special appearance†to file a petition to compel arbitration
under the Federal Arbitration Act and the arbitration clause contained in the APA.
Cutler opposed the petition, arguing
that he was not a signatory to the APA.
On March
14, 2012, the
parties argued the arbitration petition to the trial court, and the court took
the matter under submission. Later that
day, the court issued an 11-page decision granting Azur’s petition to compel
arbitration. The trial court made several
findings, including the following:
“[Cutler] is clearly suing under the
APA as a third party beneficiary of the contract, which contains an arbitration
clause. The court finds . . . JSM
Tuscany, LLC [v. Superior Court (2011)
193 Cal.App.4th 1222] to be controlling. [Cutler] is equitably estopped from
repudiating the arbitration agreement in the APA.â€
“To the extent that the doctrine [of
equitable estoppel] requires a finding that application of the doctrine to a
particular case is equitable, the court finds that such is the case here. [Cutler] received direct benefits from the APA
-- he was a third party beneficiary entitled to payments from Azur, as well as
quarterly reports.â€
“
of Avanir, the company which had financial obligations to him. Its financial health had apparently
deteriorated to the point that it sold its assets to Azur, while simultaneously
paying [Cutler] $11 million.â€
Cutler filed a petition for writ of
mandate in our court to challenge the order granting Azure’s motion to compel
arbitration. We summarily denied
Cutler’s writ petition. (
11, 2012, B240181)
Arbitration
Azur submitted a statement of claims
initiating arbitration in accord with the JAMS Comprehensive Arbitration Rules
and Procedures as specified in the arbitration agreement. Azur’s statement of claims included a prayer
for “[a]n award declaring that Contingent Payment obligations have not been
triggered.â€
At a preliminary hearing with the
arbitrator on June 4, 2012, the arbitrator set a date for the arbitration hearing, and a discovery
schedule for production of documents and depositions. Also at that hearing, the following agreement
concerning the arbitration was reached: “The
parties agree that that the Arbitrator may determine issues of arbitrability or
its scope.â€
In June 2012, Cutler filed a letter
brief in support of his challenge to the arbitrability of his claims. Specifically, Cutler sought a complete
dismissal of the arbitration, arguing that the trial court left open the
question of whether Cutler’s claims were subject to the arbitration agreement. Further, Cutler argued that language in the arbitration
agreement referencing “indemnification†and “indemnifying party†as between the
buying and selling parties identified in the APA between Azur and Avinar should
be construed to limit the arbitration agreement so as to exclude Cutler, who
was not a party (or a party affiliate) to the APA.
In opposing Cutler’s motion to
dismiss the arbitration, Azur argued that because the trial court had “already
held that Cutler ‘is clearly suing under the APA’,†this meant the parties dispute
“unmistakably [fell] within the APA’s broad arbitration clause calling for
arbitration of ‘any controversy or claim arising out of or relating to this
Agreement . . . .â€
Further, because the trial court had held that Cutler is suing under the
APA as a third party beneficiary, he “stands,†stated Azur, “in the shoes of a
signatory,†and his claim for Contingent Payments “would fall within the scope
of the arbitration clause.â€
he ruled that the “claims, counterclaims, and affirmative defenses are
dismissed as non-arbitrable without prejudice to the merits.†The arbitrator ruled that the trial court’s order
of March 2012, compelling arbitration, was consistent with the JAMS Rules
stipulated to by the parties, and empowered him to rule on the issue of the “scopeâ€
of the arbitration clause. The
arbitrator then set out the law governing the interpretation of arbitration
clauses, noting that the Federal Arbitration Act governs and that the “liberal
federal policy favoring arbitration†governed the analysis. The arbitrator construed the arbitration agreement
in the APA between Azur and Avanir –– covering “any controversy or claim
arising out of or relating to this Agreement†–– as “telltale buzzwords†and
“pedestrian language.†The arbitrator
explained what he considered the “true meaning of the scope of the
arbitration clause.†The arbitrator the
interpreted the APA’s arbitration clause covering “any controversy or claim
arising out of or relating to this Agreement or any Ancillary Agreement, or the
breach thereof†an implied limit on its scope covering only disputes
between Buyer Indemnified Parties and Seller Indemnified Parties relating to
indemnification claims identified in Section 9.3 of the APA; an interpretation
that does not cover any claim brought by unaffiliated third-parties such as
Cutler.
The arbitrator ruled that a claim involving
Contingent Payments would fall within the scope of the APA’s arbitration clause
when brought by an APA signatory or affiliate: “Thus, a claim arising from or as a result of
any Assumed Liabilities [including a claim for Contingent Payments] . . . falls
within the scope of the arbitration clause when asserted by and between the . . . [APA-contracting
parties or affiliates].†The arbitrator
ruled that, because Cutler is
neither a Buyer Indemnified Party nor a Seller Indemnified Party, or one of
their affiliates, as identified in the APA, claims brought by Cutler were no subject
to the APA’s arbitration clause.
Arbitration Confirmed
The parties filed competing
petitions in the trial court to vacate and confirm the arbitrator’s award. Cutler argued the award properly fell within
the arbitrator’s power to determine the scope of the arbitration, and that the
trial court had previously only decided a question of “enforceability†of the
arbitration agreement. Azur argued the
arbitrator exceeded his powers because the trial court’s previous order
compelling arbitration encompassed the issue of arbitrability. Azur requested that the matter be sent back to
arbitration, before a different arbitrator.
At a hearing on October
18, 2012, the
trial court accepted Cutler’s position. The court
granted his petition to confirm the arbitrator’s award, lifted the stay of the
litigation, and directed Azur to respond to Cutler’s complaint.
Azur filed the present appeal.
I. Appealability
Cutler has filed a motion to dismiss
Azur’s appeal. The motion argues that Azur
is not an aggrieved party under a trial court order denying a petition to
compel arbitration (see § 1294, subd. (a)), nor an order dismissing a
petition to vacate an arbitration award (see § 1294, subd. (b)), nor an
appealable judgment entered pursuant to the arbitration statutes (see § 1294,
subd. (d)). We find the trial court did
enter an appealable judgment confirming the arbitrator’s award. (Ibid.)
In
this state, “Special Proceedings of a Civil Nature†are governed by Part 3 of
the Code of Civil Procedure. (§ 1063 et seq.) Title 9 of Part 3 (§ 1280 et seq.)
governs trial court proceedings involving arbitration, such as enforcement of
arbitration agreements by petitions to compel arbitration (§ 1281 et seq.),
and enforcement of arbitration awards by petitions to confirm such awards (§ 1285
et seq.). The right to appeal from a
trial court proceeding involving arbitration is governed by section 1294 et
seq.
We
agree with Cutler that the trial court did not enter an order denying a
petition to compel arbitration.
(§ 1294, subd. (a).) Azur
got to go to arbitration; the trial court granted
its petition to compel arbitration.
Azur’s argument that the trial court’s order confirming the arbitrator’s
award is the substantive equivalent to an order denying Azur’s petition to
compel arbitration is not persuasive.
Again, we reiterate that Azur got to go to arbitration. The fact that Azur ultimately “lost†in the
arbitration forum in the sense that it did not obtain a decision, on the
merits, of the parties’ disputes –– due to the arbitrator’s ruling on scope
arbitrability –– does not mean that Azur’s contractual right to arbitration was
denied. In the end, Azur’s argument
essentially boils down to a claim that it never obtained a court’s interpretation of the scope of the parties’ arbitration
agreement. The absence of a court’s
interpretation of the parties’ arbitration agreement here is not dispositive of
the appealability issue in our view. The
whole point of arbitration is that an arbitrator decides issues assigned to him
or her by the parties, and that is exactly what occurred here. The absence of a court’s determination on
arbitrability does not mean that a court rendered a decision denying arbitration.
We
also agree with Cutler that the trial court did not enter an appealable order
dismissing a petition to vacate an arbitration award. (§ 1294, subd. (b).) Here, the trial court addressed competing
petitions to confirm or vacate the arbitrator’s award, and, on the merits of the
petitions, entered an order confirming the award and denying to vacate. Azur’s petition to vacate the arbitrator’s
award was not dismissed. It was
considered; it was denied in favor of confirmation.
This
brings us to section 1294, subdivision (d), which provides: “An aggrieved party may appeal from: . . . A
judgment entered pursuant to [title 9].†Here, we disagree with Cutler that such an
appealable judgment was not entered. Cutler
is correct that the trial court expressly declined to enter a formal form of decree
entitled “judgment.†But we disagree
with Cutler that this means we are precluded from finding that an appealable
judgment under the arbitration statues was entered. The trial court’s order of October 18, 2012, in substance and effect, constituted a final determination confirming
an arbitrator’s award –– namely, the arbitrator’s decision that there will be
no arbitration on the merits of the dispute between Cutler and Azur. The trial court’s order leaves no further issue
concerning the arbitration proceedings in the court for future
consideration. We find the trial court’s
final and whole adjudication of the arbitration issues presented to constitute
an “appealable judgment†within the meaning of section 1294, subdivision (d). In determining whether an appealable
order or judgment exists, “‘[i]t is not the form of decree but the substance
and effect of the adjudication which is determinative.’†(See Griset
v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 698, 700 (
for writ of traditional mandate that is coupled with other causes of action is not
actually a “judgment†for purposes of appeal so long as the other causes of
action remain pending; there is no applicable statute making an adjudication on
a petition for writ of mandate an independently appealable order or judgment].)
The
question remains whether Azur should be permitted to appeal from the appealable
judgment under section 1294, subdivision (d), at this point in the litigation. We think so. The issue in our view largely comes down to
the applicability of the one final judgment rule in the context of the arbitration
confirmation judgment involved here.
And, in our view, Griset, supra,
25 Cal.4th at page 698 and Rubin v. Western
Mutual Ins. Co. (1999) 71 Cal.App.4th 1539 (Rubin) support the conclusion that the appeal on the confirmation
judgment here should proceed.
As
noted above, the Supreme Court in Griset
ruled that a “judgment†on a petition for writ of traditional mandate that is
coupled with other causes of action is not actually a “ final judgment†for
purposes of appeal so long as the other causes of action remain pending. In making this determination, the court noted
that there is no applicable statute making a final adjudication on a petition
for writ of mandate an independently appealable order or judgment. (Griset,
supra, 25 Cal.4th at pp. 698, 700.)
Here, in contrast, there is such a statute, namely, section 1294,
subdivision (d). When, as here, a
petition to confirm an arbitration award is coupled with remaining causes of
action, an adjudication that finally resolves all of the arbitration issues
between the parties is an appealable judgment under section 1294, subdivision
(d).
In
Rubin, Division Five of our court
ruled that a judgment confirming an arbitration award that fixed the appraisal
value of an insurance loss was not a final judgment within the meaning of
section 904.1, and, thus, was not appealable.
(Rubin, supra, at pp.
1546-1548.) This was so, reasoned our
colleagues, because the element of the value of the loss was an included aspect
of the plaintiff’s broader claims that the insurer had acted wrongly in
resolving an insurance claim. Here, contrary
to Rubin, the arbitration confirmation
does not merely resolve an “element†of the claims between Cutler and Azur, and
we see no statutory impediment to an appeal from the arbitration confirmation
judgment that finally resolves whether there will be an arbitration of the
parties’ dispute on the merits.
The trial court
here was appropriately concerned with the one final judgment rule (see, e.g.
1097) in declining to enter a formal decree of judgment on Cutler’s petition to
confirm, given that the merits of the parties’ dispute over Contingent Payments
between Cutler and Azur remains pending.
Nonetheless, we are satisfied that section 1294, subdivision (d), may be
applied here in light of the final adjudication that there will be no arbitration
on the merits of the parties’ dispute.
We see a difference between a judgment confirming an arbitration award
that addresses one element of broader claims between parties, and a judgment confirming
an arbitration award that there will be no arbitration on the merits.
II. Arbitrability
Azur
contends the trial court’s judgment confirming the arbitrator’s award that the parties’
dispute is not arbitrable under the parties’ arbitration agreement must be
reversed and replaced with an order vacating the award because the trial court
erred in failing to find that the arbitrator “exceeded [his] powers†in issuing
his award. Azur bases its argument on the
following rule of law: an arbitrator
exceeds his powers when he issues an award that conflicts with a trial court’s
prior ruling that the parties are bound by an arbitration agreement. Azur cites Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 56 (
argument. Azur argues the arbitrator
exceeded his powers because the trial court, at the time it compelled
arbitration, had ruled that Cutler is bound to arbitrate to the same extent as
the APA signatories. In summary,
Azur argues (1) as a matter of law that, when a trial court rules that a certain
dispute between certain parties is arbitrable, an arbitrator cannot issue an
award that says otherwise, and argues (2) as a matter of historical fact, that this
is what happened in the arbitration proceedings in the trial court between Azur
and Cutler. We are not persuaded to find
the confirmation judgment is erroneous. The
trial court correctly understood that Azur was conflating two distinct
principles, namely, whether a particular party is estopped to assert that he or
she is not personally bound by an arbitration agreement, and whether a
particular dispute, by virtue of its nature, is or is not covered by an
arbitration agreement.
We
are mindful that arbitration is a matter of contract, and that in formulating a
contract to arbitrate “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.†(Rent-A-Center
West, Inc. v. Jackson (2010) 561 U.S. 63; 130 S.Ct. 2772, 2777.) When
clear and unmistakable evidence shows that parties have agreed to arbitration
of arbitrability issues, those issues may properly be sent to an arbitrator,
notwithstanding that the arbitrator could thereafter paradoxically find that
the parties’ arbitration agreement as a whole was invalid and or enforceable from
its very inception. (
(2012) 204 Cal.App.4th 1425, 1439-1445 [generally discussing who, as between a court
and an arbitrator, decides arbitrability, and the heightened standard of clear
and unmistakable evidence for determining whether the issue was delegated to
the arbitrator].) Basically, a part
of an arbitration agreement delegating the issue of arbitrability to the
arbitrator may be effectively severed from the whole of the arbitration agreement
and may be enforced independently, leaving issues of arbitrability for the
arbitrator, including whether the arbitration agreement covers a particular
controversy. As explained in
University of San Francisco (1983) 142 Cal.App.3d 942, at page 953: “It is . . . established
that the parties may stipulate to submit to binding arbitration the issue of
whether a particular dispute is in fact arbitrable. [Citations.]â€
Azur’s
argument that the arbitrator “exceeded his powers†here because the trial court
had already ruled on the issue of arbitrability fails because the contention
that the arbitrator ruled on an issue upon which the trial court had already ruled
is not a correct rendition of the history of the proceedings. There is no dispute that the trial court
entered an order on March 14, 2012, granting Azur’s
petition to compel arbitration. At that
time, the court ruled that Cutler was estopped
to assert that he was not personally bound by the arbitration agreement. But that order compelling arbitration did not
include a ruling on the issue of scope arbitrability. Specifically, the court did not rule whether
Cutler’s particular claims against Azur were covered by the arbitration
agreement, thus foreclosing the arbitrator from addressing the issue.
The
trial court’s order on March 14, 2012, granting Azur’s
petition to compel arbitration ruled that Cutler was estopped from asserting
that he was not bound by the arbitration clause in the APA. We read the court’s order, as did the
arbitrator, and as did the trial court in later addressing confirmation, not to
have addressed the issue of scope arbitrability. Further, the record supports that the parties
themselves read the trial court’s order of March 2012 the same way. In the very first hearing in the arbitration
forum, “[t]he parties
agree[d] that the Arbitrator may determine any issue of arbitrability or its
scope.â€
Azur’s opening brief on appeal includes
no mention of the parties agreement that the arbitrator could decide the issue
of arbitrability, and offers no argument as to why the agreement should not be
the beginning and end of our analysis of Azur’s appeal. On the contrary, rather than addressing the matter
head-on, Azur argues on appeal that it “relied on the preclusive effect [of the
trial court’s order compelling arbitration].†The unstated implication of Azur’s argument is
that it either saw no reason to object, or gave up trying to object, to the
arbitrator deciding arbitrability. We
think not. No matter how Azur may try to
spin past events now, the record shows Azur agreed to the arbitrator deciding
arbitrability. First, that is expressly
what the arbitrator’s first report states.
Second, in Azur’s opposition to Cutler’s motion to the arbitrator to dismiss
the arbitration, Azur itself solicited a ruling from the arbitrator on
arbitrability. Third, Azur has never denied
that it had agreed that the arbitrator could decide the issue of scope
arbitrability.
Azur’s attempt on appeal to create
the impression that it did object to, or that it did not agree to, the
arbitrator deciding arbitrability is not persuasive. Azur’s opening brief on appeal relies on isolated
passages plucked from papers that it filed in the trial court and with the
arbitrator. For instance, in Azur’s opposition
to Cutler’s motion to the arbitrator to dismiss the
arbitration, Azur stated that the trial court “already held that Cutler’s
claims . . . are for breach of the APA. Thus, Cutler's claims necessarily fall within the broad scope of ‘any controversy or
claim arising out of or relating to’ the APA.†This was not an objection to the arbitrator
deciding the issue of the scope of the arbitration agreement nor an assertion
that arbitrability had already been decided; it was a substantive argument on
the merits of the issue of scope arbitrability.
In other words, this was Azur’s argument for why it should
showing that it objected to the issue being decided by the arbitrator. Basically, Azur was arguing that the
arbitrator should consider the trial court’s ruling that Cutler was estopped
from asserting he was not bound by the arbitration agreement when the
arbitrator decided scope arbitrability.
We
find it would be unfair at this point to abide Azur’s attempt to avoid its agreement with Cutler that the arbitrator
could decide arbitrability. First, Cutler
found himself in the arbitration forum over his objections. Second, the trial court sent the parties to
the arbitration forum with the court’s understanding -- as later clarified in the confirmation
context -- that the arbitrator would address scope arbitrability. Cutler and Azur (and the arbitrator) agreed that
the arbitrator could decide arbitrability.
Were a factual finding on intent needed in this case, we could say the
record supports an inference that Azur agreed to submit the arbitrability issue
to the arbitrator as a tactical choice; in the event Azur prevailed before the
arbitrator on the issue of arbitrability, judicial review would be limited (see
Monscharsh, supra, 3 Cal.4th 1), and
Cutler’s strenuous opposition to arbitration would be silenced. Another reasonable inference is that Azur agreed
to the arbitrator deciding arbitrability in the belief that the odds were
stacked in its favor in that arbitrators may have a positive view of
arbitration and stand to financially gain by taking on arbitrations.
disavow the forum in which the issue of arbitrability was decided. (Cf. Paterson
v. City of Los Angeles (2009) 174 Cal.App.4th 1393, 1401 [an appellant may
not change a position taken in the trial court, and assert a new and different
position that would be unfair to the trial court and the opposing litigant in
light of the manner in which the appellant litigated the position in the trial
court].)
Next,
even assuming that the trial court had ruled, at the time it granted Azur’s
motion to compel arbitration, that Cutler’s claims are covered by the
arbitration agreement, it remains undeniably and undisputedly certain that
Cutler and Azur, once they stood before the arbitrator, agreed that the
arbitrator could decide the issue of scope arbitrability. As noted above, arbitration is a matter of
contract; if the parties contract to alter the framework of arbitration, we
know of nothing which would preclude them from doing so. And as noted above, there is nothing in the
record before us to show that the arbitrator unilaterally took on the issue of
arbitrability without notice to the parties and over Azur’s objection. The arbitrator did not “exceed the powers†that
were given him by agreement of the parties because the parties agreed to give
him the power to decide arbitrability.
This
then brings us to a slightly different focus of Azur’s arguments on
appeal. Azur correctly cites the rule of
law that an arbitrator may not issue a ruling that would require a party to
disobey a court order –– because to do so would be “irreconcilable with the
public policy requiring obedience to court orders.†(See City
of Palo Alto v. Service Employees Internat.
Azur says, that is, that the trial court had already ruled on arbitrability in
relation to the nature of Cutler’s claims, the arbitrator here did not
unilaterally do anything requiring a party to violate that existing court order. Rather, the parties agreed that the
arbitrator could rule on the issue of arbitrability. Azur confuses the context of one party
violating a court order, with the context of both parties reaching agreement
within or outside the framework of a court order.
We find Azur’s contention that the
arbitrator improperly revisited an issue that the trial court had already decided
to be historically incorrect. Azur again
omits critical parts of the record. Most
notably, Azur ignores that the trial court ruled –– in confirming the
arbitrator’s award –– that its earlier order granting Azure’s motion to compel
arbitration did not reach the issue of arbitrability, but rather
referred that issue to the
arbitrator to decide. In this vein, the
trial court also commended the arbitrator for correctly interpreting the court’s
order compelling arbitration. As the
court noted: “It seems that the arbitrator understood what my order was
and acted accordingly. So kudos to him.â€
Further, the trial court noted that its
referral of arbitrability to the arbitrator was made at Azur’s request. As the trial court stated: “I am convinced that [Azur] got what [it]
asked for.â€
Azur tells us on appeal that trial
court wrongly “accepted Cutler’s labels drawing a distinction between the March
Order [compelling arbitration] and the final award and confirmed the award.†We disagree.
The trial court did not accept anything from Cutler. The trial court interpreted its own
rulings. Absent a strong showing for
doing otherwise, “[w]e will not second-guess the trial court’s interpretation
of its own orders.†(
v. Diaz (2001) 26 Cal.4th
249, 259.) The record shows that Azur
itself presented two distinct issues in its petition to compel arbitration: (1) whether Cutler was estopped from arguing
he is not bound to the APA’s arbitration clause because he did not sign it; and
(2) whether the arbitration clause’s scope applied to Cutler’s dispute. The distinction is not a matter of mere semantics
or labels. Those issues are separate and
distinct, as Azur argued and the trial court ruled. The trial court ruled on the first issue, and
deferred the latter issue to the arbitrator.
The primary case Azur cites in support
of its argument that the arbitrator in the current case exceeded his powers ––
supra, 121 Cal.App.4th 44 –– recognizes that an arbitrator is not precluded
from deciding the issue of arbitrability after arbitration has been compelled
by a court. (Id. at pp. 57-58.) It is all
really a matter of what issues have been, by the parties’ agreement, reserved
for the arbitrator. To
the extent that Azur argues that Cutler’s own actions show he did not agree to
arbitrability being determined by the arbitrator, we are not persuaded.
Azur points to Cutler’s prior writ
proceeding in our court. Although it is
true that Cutler characterized the trial court’s March 2012 order compelling
arbitration in his prior writ proceeding to be ambiguous as to whether
arbitrability was to be decided by the arbitrator, this is not preclusive proof
that Cutler did not agree to the arbitrator deciding the issue. This is what occurred. We summarily denied Cutler’s writ petition,
the parties went to the arbitration forum, and the parties agreed in the arbitration
forum that the arbitrator could decide arbitrability. We also note that the APA expressly incorporated
JAMS’s rules, and that JAMS’s rules expressly contemplate that an arbitrator
may decide disputes as to scope of an arbitration agreement.
We presume the parties to the APA
understood JAMS’s rules. And, to the
extent there was an ambiguity, the trial court ultimately clarified the ambiguity
when it explained (at the confirmation hearing) that it had allowed
arbitrability to be decided in arbitration.
the scope of the arbitration clause underlies all of its arguments on
appeal. For instance, Azur repeatedly argues
the trial court ruled, in compelling arbitration, that Cutler had “stepped into
the shoes†of the APA signatories and that this meant Cutler’s claims were
covered by the arbitration agreement to the exact extent as the signatories. We do not see that the trial court ever made
the ruling Azur attributes to the court. To claim otherwise, Azur cites its own
counsel’s arguments, not the court’s ruling. In compelling
arbitration, the trial court did not rule, as Azur implies, that Cutler was “place[d]
in the same position as an APA signatory bringing a claim for breach of the
APA.†The trial court did not rule, as
Azur implies, that, “by asserting Contingent Payment claims under the APA,
Cutler assume[d] the role of an APA signatory and, therefore, Cutler is subject
to the arbitration clause even if the arbitration clause is limited to
breach of contract disputes between the parties.†Azur’s references to
its own assertions do not show the trial court’s true ruling.
The court ruled is that Cutler is “estopped
from repudiating the arbitration agreement in the APA.†That was the trial court’s resolution of
Cutler’s staked position that, because he did not have an arbitration agreement
with Avanir, and because he did not participate in negotiating the APA agreement
between Avanir and Azur, and did not sign the APA, he is not bound by the
arbitration clause in the APA. In the
end, we simply disagree with Azur as a historical matter, that the arbitrator
decided an issue the court had already resolved.
Azur’s
arguments on appeal beg the question as to why Azur would agree that the
arbitrator could rule on the issue of arbitrability that Azur already won in
the trial court. We conclude as
explained above, that Azur did not win in the trial court. Second, it does not matter to us why Azur
agreed to reopen an issue, if that occurred; the record shows that this is what
Azur did. Azur’s opening brief on appeal ignores the parties’ agreement in
the arbitration forum regarding the arbitrabor’s power to decide the issue of arbitrability. In our view, the agreement supports
affirmance of the trial court’s judgment confirming the arbitrator’s decision
that there would be no arbitration on the merits. (See generally, J.C. Gury Co. v. Nippon Carbide Industries (USA) Inc. (2007) 152
Cal.App.4th 1300, 1306 [a party may not argue the merits of an issue toward a desired
outcome to an arbitrator, then claim in the context of judicial review “‘that
this was merely its way of telling the arbitrator he could not consider the
issue’â€].)
Finally, we reject Azur’s argument
that the arbitrator’s award must be vacated because the arbitrator ruled in
“manifest disregard of the law†in concluding that the APA’s arbitration clause
does not cover Cutler’s claims. The
circumstances under which a court may vacate a final arbitration award on the
ground that the arbitrator “exceeded his or her powers†are limited. Most significantly, an arbitrator does not
exceed his or her powers when he or she renders a decision that is based on
errors of fact or law. (See
(1994) 9 Cal.4th 362, 381.) Noting in
this opinion should be construed to fault the arbitrators decision; we merely
note that if it were infected with legal error, we affirm in any event.
The judgment confirming the arbitration
award is affirmed. Respondent is awarded
costs on appeal.
BIGELOW,
P. J.
We concur:
RUBIN, J.
GRIMES,
J.
further section references are to the Code of Civil Procedure except as
otherwise stated.
corporation; defendant
and respondent Azur Pharma is alleged to be an Ireland
corporation. Both entities are
represented by the same counsel.
Hereafter, we refer to the defendants and respondents collectively as
Azur.
