Truplug v. Forespare Products























Filed 4/2/13 Truplug v. Forespare Products 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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




>

TRUPLUG, a division of ARTELIER STUDIO, LLC, Plaintiff and Respondent, v. FORESPAR PRODUCTS CORP., et al., Defendants and Appellants.

G046983 (Super. Ct. No. 30-2011-00510961) O P I N I O N

Appeal from an order of
the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, Elizabeth Olsen, Temporary Judge. (Pursuant to Cal.
Const., art. VI, § 21.) Affirmed.

Barker Olmsted &
Barnier, APLC, Christopher W. Olmsted and Jenna M. Crisci for Defendants and
Appellants.

Jeffrey L. Marcus for
Plaintiff and Respondent.





Forespar Products Corp.
and Scott Foresman (collectively Forespar) appeal from the order denying its href="http://www.mcmillanlaw.com/">petition to compel arbitration of an
action filed against it by Truplug, a division of Artelier Studio, LLC
(Truplug). We find the trial court
correctly interpreted the parties’ contract, and we affirm the order.

FACTS AND PROCEDURE

Truplug is the inventor
of a product (called Truplug) described as “a temporary and emergency plug
for a boat leak caused by a maintenance failure or boat hull
breach . . . .” In
2009, Truplug and Forespar entered into an agreement (the Agreement)
whereby Truplug would manufacture the product and Forespar had exclusive rights
to market and distribute the
product.

As relevant to the
petition to compel arbitration, the Agreement contained the following
provisions:

“15.4 Termination
for Material Breach. In the
event that either party materially breaches any provision of this Agreement,
the other party hereto shall have the right, in addition to all other remedies
available to it, to terminate this Agreement upon ninety (90) days’ written notice
to the defaulting party; provided, however, that if said party within such
ninety (90) day period cures the breach, this Agreement and the license rights
granted hereunder shall continue in full force and effect. All breaches of this Agreement shall be
construed in a manner as to be curable.
In the event of a dispute over whether a breach has occurred or has been
cured after such ninety (90) day period, the parties agree to toll the time
period provided to cure the breach and participate in the following alternative
dispute resolution procedures. The
parties shall try in good faith to settle the dispute by
mediation . . . before resorting to arbitration,
litigation, or some other dispute resolution procedure. In the event a party refuses to participate
in the mediation, the other party shall be entitled to recover fees and costs
in any ensuing proceeding. In the event
such mediation does not resolve the dispute, either party may deliver a copy
thereof to the American Arbitration Association [AAA] . . . along
with a copy of this Agreement, for binding arbitration
conducted . . . under the AAA’s Commercial Arbitration
Rules and pursuant to the Expedited Procedures provisions thereof. The arbitrator shall determine: (i) the existence of such breach; (ii) if a
breach has occurred, whether such breach was cured; and (iii) if such breach
was not cured, what is required for such cure.
If the arbitrator determines or declares that a breach occurred but was
not cured, the breaching party shall have thirty (30) days to cure the breach
in accordance with the arbitrator’s determination. Compliance by the breaching party within the
aforesaid thirty (30) day period with the determination or declaration of what
shall constitute cure of such breach shall constitute a full, complete and
timely cure of such breach for purposes of this Agreement. In event the breaching party does not timely
cure the breach in accordance with the arbitrator’ determination, the
arbitrator may, upon request of the non-breaching party, declare the Agreement
to be terminated.”

“16.1 Dispute
Resolution. Whenever any party
desires to institute litigation proceedings against the other party concerning
this Agreement, it shall provide written notice to that effect to such other
party. The party giving such notice
shall refrain from instituting said litigation proceedings for a period of
thirty (30) days following the date it provided such notice. During such period, the parties shall attempt
in good faith to amicably resolve their dispute by negotiation. This Section 16.1 shall not prohibit any
party from seeking injunctive relief at any time to restrain or prevent a
breach or threatened breach of this Agreement.”


“16.3 Governing
Law; Service of Process. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of California,
without regard to conflicts of laws principles, and applicable federal law of
the United States. Except as otherwise provided in Section 15.4,
any action or proceeding in respect of any claim arising out of or related to
this Agreement or the transactions contained in or contemplated by this
Agreement, whether in tort or contract
or at law or in equity, shall be brought in a state or federal court sitting in
the County of Orange (the “Designated
Courts”). Each of the
parties: (i) irrevocably submits to the
exclusive jurisdiction of the Designated Courts; (ii) waives any objection to
the laying of venue in any such action or proceeding in the Designated Courts;
(iii) waives any objection that the Designated Courts are an inconvenient forum
or do not have jurisdiction over any party hereto; and (iv) agrees that service
of process upon such party in any such action or proceeding shall be effective
if notice is given in accordance with Section 16.7.”

Truplug filed the
instant complaint against Forespar in September 2011. Truplug’s complaint alleged that in
negotiating the Agreement, Forespar made numerous misrepresentations about its
expertise in marketing marine products and its qualifications and ability to
market the Truplug product that induced Truplug into entering into the
Agreement. During the first eight months
of the Agreement, Forespar ordered over 19,000 units of the Truplug product,
but thereafter placed no orders.
Forespar then ceased marketing, advertising, or distributing the Truplug
product. On January 21, 2011, Truplug gave Forespar written
notice of the dispute in accordance with the Agreement. In June 2011, Truplug sought mediation of the
dispute, but Forespar rejected the mediation request.

Truplug’s complaint
alleged causes of action for intentional and negligent misrepresentation
relating to Forespar’s pre-Agreement representations. The complaint alleged Forespar was negligent
in marketing and distributing the Truplug product. And the complaint sought injunctive and
declaratory relief in the form of termination of the Agreement so Truplug could
market and distribute its product.

Forespar responded to
Truplug’s complaint by filing a petition to compel arbitration pursuant to Code
of Civil Procedure section 1281.2,href="#_ftn1" name="_ftnref1" title="">[1]
contending section 15.4 of the Agreement required mandatory arbitration of “any
dispute that may arise under said [A]greement . . . .” The petition attached the Agreement and a
declaration from Foresman stating he had specifically negotiated section 15.4
with Truplug’s principal, Henry Goldman, Goldman was “particularly keen to
include ADR provisions as a means to avoid expensive litigation[,]” and the
parties intended “to resolve any dispute without resorting to civil court
litigation.”

Truplug opposed the
petition. It objected to Foresman’s
declaration as inadmissible hearsay. It
argued the arbitration language was ambiguous, inconsistent with other parts of
the Agreement, and did not mandate arbitration of all disputes. Truplug included several documents with its
opposition showing it had asked Forespar to participate in mediation of the
dispute, but Forespar refused.

The trial court denied
the petition to compel arbitration concluding, “[t]he language of
the . . . Agreement does not mandate binding
arbitration. It merely gives the parties
the option of resolving issues arising from the [A]greement via binding
arbitration.” At the hearing, the court
observed it was in part focusing on the use of the word “‘may’ as permissive
rather than ‘shall’ as mandatory[,]” in section 15.4. But it also was considering the language that
parties would “try in good faith to settle the dispute by
mediation . . . before resorting to arbitration, litigation
or some other dispute resolution procedure,” and section 16.3 providing that
any litigation would be brought in state or federal court in Orange
County. “So the way I read it, arbitration wasn’t
necessarily mandated. It was one of the
choices provided for in the agreement itself.
If they hadn’t contemplated litigation in a court like this, I don’t
know why they would have included that term.”
The court did not rule on evidentiary objections. Forespar appeals from the order denying its
petition. (§ 1294, subd. (a).)

DISCUSSION

Forespar contends the
trial court should have granted its petition to compel arbitration because the
Agreement provided for mandatory binding arbitration of all disputes arising
from the Agreement. We find no error.

“[S]ection 1281.2
states, in pertinent part: ‘On petition
of a party to an arbitration agreement alleging the existence of a written
agreement to arbitrate a controversy and that a party thereto refuses to
arbitrate such 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 . . . .’ (Italics added.) ‘The clear purpose and effect of section 1281.2
is to require the superior court to determine in advance whether there is a
duty to arbitrate the controversy which has arisen. The performance of this duty necessarily
requires the court to examine and, to a limited extent, construe the underlying
agreement.’ [Citation.] The question here, therefore, is whether ‘the
party resisting arbitration [i.e., [Truplug]] in fact agreed to arbitrate.’ [Citations.]” (Titan
Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d
1122, 1126-1127 (Titan Group).)

“‘“An appellate court is
not bound by [the trial court’s] construction of the contract based solely upon
the terms of the written instrument . . . where there is no
conflict in the evidence . . . .”’ [Citation.]
In the absence of conflicting extrinsic evidence, the interpretation of
a contract becomes a question of law and an appellate court ‘must make an
independent determination of the meaning of the contract.’ [Citations.]”
(Titan Group, supra, 164
Cal.App.3d at p. 1127.)

Forespar contends that
in interpreting section 15.4 of the Agreement, the trial court erroneously
focused on the use of the word “may,” (i.e., “[i]n the event such mediation
does not resolve the dispute, either party may
deliver a copy thereof to the [AAA] . . . for binding
arbitration . . .” (italics added), and interpreted that word as
meaning arbitration was permissive, not mandatory. Forespar relies on two cases, >Service Employees Internat. Union, Local 18
v. American Building Maintenance Co. (1972) 29 Cal.App.3d 356 (>Service Employees), and >Pacific Gas & Electric Co. v. Superior
Court (1993) 15 Cal.App.4th 576 (Pacific
Gas & Electric) [overruled on another ground in Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362,
367], which it argues compels the conclusion the use of the word “may” only
refers to the right of either party to invoke arbitration, not to whether
arbitration is permissive or mandatory.
In other words, the word “may” means only that the Agreement does not
require the parties to arbitrate in all cases.
Rather, arbitration is triggered only when a party opts for it. But once that choice is made by one party,
the other is required to arbitrate.

In Pacific Gas & Electric Co., supra, 15 Cal.App.4th 576, the
agreement pertaining to the power company’s purchase of natural gas from an oil
company provided for certain modifications to the gas price. If the parties could not agree on the new
price “‘the price to be paid for such gas . . . shall be
established by [binding] arbitration . . . .” (Id.
at p. 583.) The agreement went on
to “provide[] that ‘[i]n addition to those disputes which are required to be
arbitrated under the provisions hereof [i.e., market price], >any other
dispute . . . arising between [b]uyer and [s]eller under
any provision hereof which cannot be settled by the parties within a
reasonable time may be submitted by
either party to arbitration’ . . . .” (Ibid.,
italics added.) The court rejected the
argument that use of the word “may” was permissive and allowed arbitration only
if both parties agreed. The court
disagreed, concluding that in the context of the agreement “the [word] ‘may’
signifies the right of the party to invoke arbitration.” (Id.
at p. 595.)

In Service Employees, supra,
29 Cal.App.3d 356, the agreement provided for disputes to be first submitted to
“‘the Board of Adjustment’” and “‘[i]n the event that any matter submitted to
the Board of Adjustment cannot be settled within five (5) consecutive
business days, time may be extended by mutual agreement with the parties
hereto, or the issue in dispute may be
submitted to an impartial arbitrator”
who’s decision “‘shall be binding upon the parties
hereto.’ . . . ” (>Id. at p. 358.) The court considered “whether, in the
agreement’s context, the language . . . must be construed
as implying (1) with the consent of both parties, or (2) at the option of
either.” (Ibid.) It decided the latter
construction was correct because if the consent of both parties were required,
“the arbitration provision would be of little purpose. It would lack validity and enforceability,
and would amount to no more than a barren recital that the parties might in the
future agree to arbitrate a dispute.” (>Ibid.)


By contrast, in >Titan Group, supra, 164 Cal.App.3d 1122,
the agreement at issue provided in pertinent part, “All questions or
controversies which may arise between the [parties], under or in reference to
this contract, may be subject to the
decision of some competent person to be agreed upon by the [parties] who shall
act as referee, and his decisions shall be final and conclusive upon both
parties. Should the [o]wner and the
[c]ontractor be unable to agree upon a referee, a board of three arbitrators
shall be chosen, one by the [o]wner, one by the [c]ontractor, and the third by
the two so chosen, and the decision of any of said arbitrators shall be final
and binding upon the parties. . . .” (Id.
at p. 1125.) The >Titan court concluded the arbitration
provision was not mandatory.

Titan observed that “[i]n construing the agreement, ‘we are guided
by the rule that, contractual arbitration being a favored method of resolving
disputes, every intendment will be indulged to give effect to such
proceedings.’ [Citations.] Furthermore, ‘[i]t is a fundamental rule of contractual
construction that where two interpretations are reasonably permissible, courts
will adopt that which renders a contract valid and effectual.’ [Citations.]”
(Titan Group, supra, 164
Cal.App.3d at p. 1127.)

Titan, however, also observed that in determining whether
arbitration was mandatory, “We are also mindful of the href="http://www.mcmillanlaw.com/">constitutional right to trial by
jury. (Cal. Const., art. I, § 16.) ‘The right to trial by jury is a basic and
fundamental part of our system of jurisprudence. [Citations.]
As such, it should be zealously guarded by the courts. [Citations.] In case of doubt, therefore, the issue should
be resolved in favor of preserving a litigant’s right to trial by jury. [Citations.]’
[Citation.]” (>Titan Group, supra, 164 Cal.App.3d at
pp. 1127-1129.) The court concluded the
agreement before it did not demonstrate such a waiver “in clear and
unmistakable form. . . . We cannot elevate judicial
expediency over access to the courts and the right to jury trial in the absence
of a clear waiver.” (>Id. at p. 1129.) Titan distinguished
Service Employees, >supra, 29 Cal.App.3d 356, noting
the Service Employees agreement “gave
the parties only two alternatives if the grievance committee (board of adjustment)
failed to resolve the matter in dispute within the five day period
prescribed: they could either extend the
time within which the grievance committee could act, or they could submit the
dispute to an arbitrator. A court or
jury trial was not an available option.”
(Titan Group, supra, 164 Cal.App.3d
at p. 1129.) Additionally, it rejected
the argument interpreting the arbitration provision as permissive rendered it
meaningless because “it does serve a contractual function. It provides the procedure for arbitration in the event the parties agree to
arbitrate.” (Ibid.)

Although Forespar
attempts to characterize Titan as an
outlier, we note other cases have echoed its concerns. (See Wolschlager
v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 789 (>Wolschager) [“Absent a clear agreement
to submit disputes to arbitration, courts will not infer that the right to a
jury trial has been waived”]; Badie v.
Bank of America (1998) 67 Cal.App.4th 779, 804 (Badie) [“[W]aiver of the right to jury trial is inherent in the
decision to resolve disputes in a nonjudicial forum. But absent a clear agreement to submit
disputes to arbitration or some other form of ADR, we cannot infer that the
right to a jury trial has been waived”].)


Turning to the
provisions before us, we conclude the trial court correctly found the Agreement
did not provide for mandatory arbitration.
We look at the arbitration language in the context of the entire
Agreement. Section 16.1 of the
Agreement, titled “Dispute Resolution,” contained no reference to arbitration
and provided that “[w]henever any party desires
to institute litigation proceedings against the other party concerning this
Agreement,” it must give notice to the other party and “refrain from
instituting said litigation proceedings
for a period of thirty (30) days” during which time “the parties shall attempt
in good faith to amicably resolve their dispute by negotiation.” (Italics added.) Section 16.3, the choice of law provision,
provided that “[e]xcept as otherwise provided in Section 15.4, any action or
proceeding in respect of any claim
arising out of or related to this Agreement . . . whether
in tort or contract or at law or in equity, shall be brought in a state or
federal court sitting in the County of Orange.”
(Italics added.)

Section 15.4, the
section where the arbitration language appears, concerns only procedures for
terminating the Agreement in the event of a material breach, and specifically
provided the only powers the arbitrator would have related to determining if
there was a breach and if the breach was cured.
It provided that in “a dispute
over whether a breach has occurred” the parties were to “try in good faith
to settle the [breach of contract] dispute by
mediation . . . before
resorting to arbitration, litigation, or some other dispute resolution
procedure.” (Italics added.) Mediation was not mandatory, but encouraged
by the next sentence of section 15.4 that if any party refused to participate
in mediation, the other party “shall be entitled to recover fees and costs in >any ensuing proceeding,” again, with no
limitation of “proceedings” to
arbitration. (Italics added.) Section
15.4 went on to provide, “In the event such mediation does not resolve the
dispute [over whether there was a breach], either
party may deliver a copy thereof to the [AAA] . . . for
binding arbitration. . . .”
(Italics added.) But there is no
explanation of what is to be
delivered to the AAA, and the Agreement appears to presuppose that arbitration
would only follow mediation if
mediation occurred, and does not clearly indicate arbitration is
mandatory.

In short, section 15.4
is not a clear agreement to arbitrate any and all controversies arising between
the parties. Rather, as drafted, it lays
out an alternative method of resolving the narrow issue of whether there is an
uncured material breach. Moreover, the
section mentioning arbitration does not bind any party to submit any
controversy to arbitration. Thus, there
is no clear and unequivocal agreement to waive the right to a court trial of
controversies between the parties (Wolschlager,
supra, 111 Cal.App.4th at
p. 789; Badie, supra, 67
Cal.App.4th at p. 805; Titan, >supra, 164 Cal.App.3d at
p. 1129), and accordingly, the trial court correctly construed the
provision as optional, not mandatory.

DISPOSITION

The order is
affirmed. Respondent is awarded costs on
appeal.







O’LEARY,
P. J.



WE CONCUR:







RYLAARSDAM,
J.







BEDSWORTH, J.