Jacobsen v. Winkler

Filed 9/24/07 Jacobsen v. Winkler 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

Appeal from an order of the Superior Court of Orange County, Robert D. Monarch, Judge. Affirmed with directions.

Ostergar Hunter Law Group and Allen C. Ostergar III for Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton and Michael D. Stewart for Defendant and Respondent.

Tyson Jacobsen appeals from an order denying his petition to compel arbitration of a wage claim filed by Stewart Winkler before the Labor Commissioner. Jacobsen initiated that petition even though he is not a party to the proceeding before the Labor Commissioner. Moreover, Advent CM, Inc., the entity which is named as defendant in the proceeding before the Labor Commissioner, is not a party to the arbitration agreement which Jacobsen asserts governs this dispute. Both of those problems were brought to the attention of the trial court, and under the circumstances, it is not surprising Jacobsen was unsuccessful below. What is surprising is that he pursued this issue on appeal, without even acknowledging the standing issues in his opening brief. The order is affirmed.

Winkler has filed a motion seeking an award of attorney fees as a sanction for Jacobsens pursuit of a frivolous appeal. The motion is granted, and the case is remanded to the trial court for a determination of the appropriate amount of sanctions to be assessed against Jacobsen.

* * *

According to the evidence submitted in support of Jacobsens petition to compel arbitration, he and Winkler entered into an agreement in May of 2005, to form a company called Advent Development, LLC (Development). That agreement contained an arbitration clause, stating that any controversy or claim arising out of or relating to this agreement . . . shall be settled by arbitration in accordance with the rules of the American Arbitration Association. . . .

Subsequently, in the late summer of 2006, Winkler brought a claim before the Labor Commissioner, claiming he was owed back wages by a corporation named Advent CM, Inc. (Advent). Neither Jacobsen individually, nor Development is a party to the wage claim.^[1]

Again, according to Jacobsen, the wages which Winkler seeks to recover from Advent are for services actually rendered to Development, rather than Advent. Nonetheless, Jacobsen asserted those wages are subject to the arbitration provision contained in the Development agreement. On that basis, he requested an order compelling the wage dispute into arbitration.

Winkler opposed the petition, on several grounds. First, Winkler pointed out that Jacobsen, as an individual, had no standing to petition for arbitration of a wage dispute to which he was not a party. Winkler also asserted that because his wage claim was asserted against Advent, rather than Development, the arbitration provision in the Development agreement had no application to the dispute. Finally, Winkler disputed Jacobsens contention that his wage claim was based on services rendered for Development, explaining that the contention appeared to be based upon a willful misconstruction of an earlier communication.

In his reply brief, Jacobsen claimed that Winklers attack on his standing to bring the petition borders on the frivolous. Jacobsen asserted that, as a party to the Development agreement, he had standing to enforce the arbitration provision in that agreement. And he characterized Winklers wage claim as an improper effort to twist what is clearly a dispute among investors into a wage claim.

The court denied the petition, noting that Jacobsen had failed to demonstrate the existence of a dispute falling within the parameters of the arbitration agreement.

I

As Jacobsen points out, California has a strong public policy favoring arbitration as a method of dispute resolution. However, it is also true that [a]rbitration is a matter of contract and a party cannot be required to arbitrate a dispute he has not agreed to submit. (Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9.) Moreover, Californias general policy favoring enforcement of valid arbitration agreements is insufficient to warrant imposing a higher burden on a party opposing arbitration, especially when the existence and enforceability of the agreement to arbitrate is the very issue before the trial court. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

Thus, in determining whether an enforceable arbitration agreement exists, the initial burden is on the party petitioning to compel arbitration. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) Once the petitioner has met that 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. (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413.)

In this case, Jacobsen not only failed to meet his initial burden of proving the existence of an applicable arbitration agreement, he failed even to establish he had standing to bring the petition. Stated simply, Jacobsen is not a party to the dispute he is attempting to force into arbitration.

The law is clear that [e]very action must be prosecuted in the name of the real party in interest . . . . (Code Civ. Proc., 367.) Jacobsen is not a party to the wage dispute before the Labor Commissioner, and is thus not a real party in interest regarding the issue of how that dispute gets resolved. Although Jacobsen may have a stake in Advent either as a shareholder, officer, or both that stake does not make him legally indistinguishable from the corporation itself, and does not give him standing to assert its rights in the wage proceeding. Indeed, Jacobsens reply brief expressly eschews the suggestion that he is attempting to do so: Jacobsen has never asserted that his petition was based on Advent CMs rights. . . . He brought the petition to enforce his own rights . . . .

But, of course, Jacobsen, a non-party to the wage claim, has no right of his own to direct the procedures for its resolution. Only the parties to that claim have such a right. If Advent believes it is entitled to arbitrate the wage claim, it is up to Advent to pursue that option. And if Advent elects not to do that, then Advent thereby waives whatever arbitration rights it might have had.

Unfortunately, Jacobsen ignores the standing problem in his opening brief.[2] Instead, his brief merely reiterates his claim that the services for which Winkler sought payment before the Labor Commissioner were actually rendered for the benefit of Development, the entity whose formation document contains the arbitration provision, rather than for the benefit of Advent, the party apparently named as the defendant in that labor proceeding. Thus, according to Jacobsen, that wage claim aris[es] out of or relate[s] to the agreement between Winkler and Development, and is covered by its arbitration provision.

Which brings us to the second problem even assuming the services rendered were for the benefit of Development, that does not change the fact that Development is likewise not a party to the wage dispute. Instead, the defendant is Advent. Even if we could get past Jacobsens own lack of standing to bring this petition, we would still have to assess whether Advent, the defendant in the wage case, would itself have some right to invoke the arbitration provision.

It is not enough that the language of the arbitration provision is so broadly worded as to cover the type of dispute at issue; it must also govern the rights of the particular parties to that dispute. As this court noted when considering a similar issue in a recent case, [g]iven the breadth of the contracts arbitration provision, . . . the question is not so much what is covered by the agreement but rather who may invoke it. (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1712.)

As a general rule, [s]omeone who is not a party to the contract has no standing to enforce the contract. . . . (Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034.) Although there is an exception to this basic rule of contract enforcement, for those additional persons or entities who/that can prove they are intended third-party beneficiaries of the contract in question,^[3] Jacobsen has made no argument that Advent occupies such a role vis--vis the Development agreement. Thus, even if Advent itself had been the party petitioning to compel arbitration, Jacobsen has utterly failed to demonstrate that Advent might have prevailed.

We find no error in the courts denial of the petition.

II

Winkler has moved for sanctions, asserting that Jacobsens appeal is frivolous. We agree that it is.

An appeal is frivolous when it is prosecuted for an improper motive to harass the respondent or delay the effect of an adverse judgment or when it indisputably has no merit when any reasonable attorney would agree that the appeal is totally and completely without merit. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.) This appeal meets the latter standard. In our view, no reasonable attorney would believe that a non-party to a dispute even one with substantial ties to one or both of the litigants would have standing to force that dispute into arbitration when neither of the parties has chosen to do so.^[4] Consequently, the motion for sanctions is granted.

The amount of sanctions requested by Winkler in his motion, $5,106.20, reflects less than eight hours of attorney time on the opposition brief, plus an additional $1,400 in fees expended to prepare the motion. The amount is certainly reasonable in light of the issues presented. At oral argument, Winklers counsel indicated that additional time had been spent since that motion was filed, and sought to augment the amount requested. We therefore remand the issue to the trial court for a determination of the appropriate amount of sanctions to compensate Winkler for that additional time.

The order denying the petition to compel arbitration is affirmed, and Jacobsen is ordered to pay the amount of $5,106.20, plus any additional amount determined by the trial court, to Winkler as sanctions for a frivolous appeal. Winkler is entitled to recover his costs on appeal.

BEDSWORTH, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

FYBEL, J.

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[1] In his declaration in support of the petition, Jacobsen claimed that Winklers wage dispute is against Advent. However, the document he attached as an exhibit to his declaration identifies the defendant in the wage claim as Kimstaff. Jacobsen does not explain the discrepancy, but Winkler does not dispute that his wage claim is asserted against Advent.

[2] In his reply brief, Jacobsen suggests that, because he is a party to the Development agreement, he has standing to enforce its terms. But the issue of whether he has standing as a party to the agreement is wholly distinct from the issue of whether he has standing in the wage dispute. Because he has no personal stake in that dispute, he simply has no right to inject himself into the middle of it and how the parties choose to resolve it is, legally speaking, none of his business.

[3] Civil Code section 1559 provides: [a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it. (Italics added.)

[4] We note that Winkler also argues the appeal is frivolous for the additional reason it is now moot. He claims in the time since the trial court denied Jacobsens petition to compel arbitration, the wage dispute has proceeded to a resolution before the Labor Commissioner. However, our record contains no evidence of those further proceedings, and thus the mootness issue plays no part in our analysis.