| San Francisco Community College District, VS Keenan & Assoc RG04183334 |
| Joint Powers Authority (JPA) Executive Committee |
 |
 |
 |
| Deposition of Ray Artiano (with SDCOE-JPA atty. Dan Shinoff acting as Artiano's counsel) |
Did San Francisco Schools and their
fellow plaintiffs want to clean up the
school insurance industry?
Or did they just want a cut of the spoils? They settled the case,
leaving the public ignorant of the truth of the allegations.
fellow plaintiffs want to clean up the
school insurance industry?
Or did they just want a cut of the spoils? They settled the case,
leaving the public ignorant of the truth of the allegations.
| Keenan finds growth with government niche San Francisco Business Times by Chris Rauber November 28, 2008 Keenan & Associates, the region’s third-largest insurance brokerage, is keen on rebranding itself as a cutting- edge technology resource for California school districts and other public entities that use it to buy and manage insurance and other employee benefits. The privately owned brokerage and consulting firm is based in Torrance, in Southern California, but has Bay Area outposts in Oakland, Pleasanton, Redwood City and San Jose, and has built a successful niche business with hospitals, medical groups, school districts, community colleges and other government entities. Recent customer wins include the City of San Ramon and Sacramento County, according to Henry Loubet, its Oakland- based senior vice president and chief strategy officer. Loubet and Senior Vice President John Scatterday are the firm’ s top Bay Area executives. Other new Keenan clients include three Sutter Health-affiliated medical foundations for its new specialized workers’ compensation program for medical groups. The firm is highly sensitive about releasing client names, but says it has 450 customers in Northern California, including San Francisco-based Catholic Healthcare West, Chabot Las Positas Community College District and other major hospitals, cities, counties, school districts, transit authorities and public agencies. “Even in these challenging economic times, we see that there’s opportunity out there,” said Loubet, who contends Keenan’s expertise in its niche and increasing technological savvy can help its customers — some of whom are technically challenged due to budget crunches — navigate their way through the fiscal crisis. Examples of specialized “private label” products for customers include its nearly 200,000-enrollee Keenan Pharmacy Purchasing Coalition, or KPPC, designed to provide lower prices on pharmaceuticals to enrollees in participating entities; the MAGIC (Medical Affiliated Groups Insurance of California) group self- insurance program for workers’ comp coverage; Futuris, a program to help public agencies deal with new GASB accounting standards and requirements on setting up trusts for retiree benefits and valuing and disclosing retiree benefits; and the BenefitBridge employee benefits portal. Jane Rodriguez, a personnel specialist at the Brentwood Union School District, a K-8 district in the East Bay, said Brentwood’s been a Keenan client for 20-plus years, but this summer it started implementing BenefitBridge to make enrollment in benefit programs and tracking of employee data easier and more efficient. “We’re kind of in the baby stages of implementation, but by the middle of December we’ll be up and running on all fronts,” she said. By next year, the district’s roughly 625 benefits-eligible employees will be able to use the web site to sign up for coverage by Kaiser Permanente, Anthem Blue Cross and Delta Dental of California, plus EyeMed Vision Care. On the retirement benefits/GASB front, Keenan reportedly is the only insurance brokerage in that niche, competing primarily with banks and trust companies. In late July, Keenan said the Orange Unified School District funded its post-retirement health benefits trust with a $95 million bond, using Keenan’s Futuris program to comply with relevant government accounting standards. More broadly, Loubet says the firm has a 97 percent client retention rate, which has helped it become one of the region’s and the nation’s largest brokerages, ranking 17th nationwide, according to Business Insurance magazine. Keenan at a glance Local headquarters: Oakland. Top local executives: John Scatterday, Henry Loubet. Bay Area employees: 106. Bay Area revenue (fiscal 2008): Est. $47 million. Overall revenue (fiscal 2008): $123 million. Source: Keenan |
| San Francisco Community College Dist. v. Keenan & Assoc Fear Not Law.com Filed 11/19/07 NOT TO BE PUBLISHED IN OFFICIAL REPORTS IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FOUR A115994 (Alameda County Super. Ct. No. RG04183334) This is the second appeal brought by Keenan & Associates (Keenan), in which it seeks to compel nonsignatory, public entity plaintiffs to arbitrate their claims against Keenan by virtue of their membership in various joint powers agencies (JPAs).[1] In an unpublished opinion (San Francisco Unified School District v. Keenan & Associates (May 15, 2007, A112106 [Keenan I]), we affirmed orders denying Keenans motion to compel arbitration with respect to claims asserted by San Francisco Unified School District (SFUSD) in the first and second amended complaints.[2] The instant appeal pertains to the order denying Keenans motions to compel arbitration of the claims asserted by SFUSD, San Francisco Community College District (SFCCD), Tuolumne Joint Powers Authority (TJPA),[3]and the People of the State of California, by and through San Francisco City Attorney Dennis Herrera (Herrera or the People) (collectively the named plaintiffs), in the fourth amended complaint... Accordingly, we affirm the order denying Keenans motions to compel arbitration. I. FACTS AND PROCEDURAL HISTORY A. Background ...The gist of the underlying action is that Keenan, while acting on behalf of various JPAs, of which the public entity plaintiffs are members,[4]abused its position of trust to obtain kickbacks, improper fees, and benefits from insurers to whom they steer insurance business for public entity clients. The JPAs have contractual agreements (JPA Agreements) with Keenan, in which Keenan agreed to provide various services, including general administration, underwriting administration, claims administration, and risk management services. The JPA Agreements contain arbitration provisions. Although the named public entity plaintiffs are members of the JPAs,[5]they are not signatories to the agreements between Keenan and the JPAs. The named public entity plaintiffs seek classwide relief on behalf of all California public entities adversely affected by Keenans misconduct. Similarly, the People seek statewide restitution and injunctive relief. B. Initial Complaints and Prior Motions to Compel Arbitration In November 2004, the County of Santa Clara filed a complaint on its own behalf and on behalf of the general public, alleging UCL violations and breaches of fiduciary duty committed by Keenan and various other insurers. In January 2005, SFUSD was added as a plaintiff in the first amended complaint. Keenans first motion to compel arbitration against SFUSD was granted in part and denied in part in June 2005. The trial court determined that SFUSD was not bound to arbitrate its claims against Keenan under the arbitration provisions contained in written contracts with two JPAs, of which SFUSD was a member. However, the court granted Keenans motion to compel arbitration of SFUSDs claims arising solely in connection with a July 2004 claims administration services agreement (Claims Agreement) between Keenan and SFUSD that contained an arbitration provision. The trial court stayed the arbitration under the Claims Agreement pursuant to Code of Civil Procedure section 1281.2, subdivision (c), pending resolution of the nonarbitrable claims. Following the filing of the second amended complaint, which included causes of action for breach of contract and breach of fiduciary duty, Keenan, based on SFUSDs assertion of third party beneficiary status, moved to compel arbitration and for reconsideration of the June 2005 order. However, before those motions were heard, a third amended complaint was filed in November 2005, which withdrew the contract cause of action and third party beneficiary assertions, and added SFCCD and TJPA as plaintiffs... In June 2006, SFCCD entered into a service agreement with Keenan for a web-based application named BenefitBridge, which provides services to manage, view and control various aspects of employee benefits programs (BenefitBridge Agreement). The BenefitBridge Agreement contains an arbitration provision. C. Fourth Amended Complaint and Current Motions to Compel Arbitration In July 2006, while the appeal in Keenan I was pending, a fourth amended complaint was filed, which added the People as a plaintiff. The named public entity plaintiffs asserted causes of action for breach of fiduciary duty and Cartwright Act (Bus. & Prof. Code, 16700 et seq.) violations.[6] The People asserted a UCL claim based on Keenans unfair business practices. Keenan then filed four separate motions seeking to compel SFUSD, SFCCD, TJPA, and the People to arbitrate the claims asserted in the fourth amended complaint. In October 2006, the trial court denied the motions to compel. In so ruling, the trial court explained that the named public entity plaintiffs were not bound by the arbitration agreements between Keenan and the JPAs. With respect to SFUSD, the trial court reaffirmed the portion of the June 2005 order, staying the arbitration under the Claims Agreement. Additionally, the trial court ruled that the recent (June 2006) BenefitBridge Agreement between SFCCD and Keenan did not compel arbitration of SFCCDs claims under the fourth amended complaint. The court explained that the BenefitBridge Agreement was unrelated to the instant action, which was commenced before the arbitration clause was executed. The court further explained that since the named public entity plaintiffs were not bound by the arbitration agreements, there was no basis upon which to order the People to arbitration. As a separate basis for denying Keenans motion as to the People, the trial court ruled that the injunctive relief claims were not arbitrable under Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 320 (Cruz). This appeal followed. II. DISCUSSION... 1. Introduction In Keenan I, we held that Keenan failed to establish that SFUSD should be bound to arbitrate its claims by reason of SFUSDs purported third party beneficiary status. We similarly held that Keenan failed to demonstrate that equitable estoppel, agency law, or Government Code section 6508.1 compelled SFUSD to arbitrate its claims. In the instant appeal, Keenan raises substantially the same arguments that we rejected in Keenan I. The gist of the instant appeal is that because the breach of fiduciary duty claims arise out of Keenans performance under the JPA Agreements, which benefit the named public entity plaintiffs, the named plaintiffs are bound to arbitrate their claims as third party beneficiaries. In a related equitable estoppel argument, Keenan contends that the named plaintiffs cannot accept the benefits of the JPA Agreements and simultaneously avoid the burden of those agreements. Finally, Keenan again argues that Government Code section 6508.1 mandates arbitration of the named plaintiffs claims. Nothing in the instant appeal compels this court to change its original conclusion that the trial court properly denied the motions to compel. Public policy favors arbitration as an expedient and economical method of resolving disputes, thus relieving crowded civil courts. However, arbitration assumes that the parties have elected to use it as an alternative to the judicial process. [Citation.] Arbitration is consensual in nature... As we discussed in detail in Keenan I, a nonsignatory is not bound by an arbitration agreement, except in very limited circumstances... 2. Third Party Beneficiary Whether a third party is an intended beneficiary or merely an incidental beneficiary to the contract involves construction of the parties intent, gleaned from reading the contract as a whole in light of the circumstances under which it was entered. (Jones v. Aetna Casualty & Surety Co. (1994) 26 Cal.App.4th 1717, 1725.) Although numerous agreements are at issue in the instant appeal, the JPA Agreements are identical in all material respects. As before, Keenan fails to identify any language in the JPA Agreements disclosing an intent of the JPAs and Keenan to benefit the named plaintiffs.[7] Rather, Keenan argues that the parties intent to bind the JPA members is irrelevant because the named plaintiffs are seeking to exploit the benefits of the JPA Agreements and simultaneously avoid the burdens under those contracts. Contrary to Keenans assertion, the absence of an intent to bind the named plaintiffs in the JPA Agreements is relevant. A third party beneficiary may enforce a contract made for its benefit. (Civ. Code, 1559.) However, [a] putative third partys rights under a contract are predicated upon the contracting parties intent to benefit it. [Citation.] . . . [T]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement. [Citation.] (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524, italics added.) In other words, a benefitting third party is not necessarily a third-party beneficiary. (InterGen N.V. v. Grina (1st Cir. 2003) 344 F.3d 134, 147 (InterGen).) Here, all that has been established is that the named public entity plaintiffs are members in the JPAs that separately contracted for Keenans services. Despite the lack of objective evidence indicating the JPAs and Keenan intended to confer special legal rights on the named plaintiffs, Keenan nonetheless contends the claims asserted in the fourth amended complaint are arbitrable under the arbitration clauses in the JPA Agreements. Keenan relies on the principle that contracts providing for arbitration of any controversy . . . arising out of or relating to the contract . . . [are] sufficiently broad to include tort, as well as contractual, liabilities so long as the tort claims have theirroots in the relationship between the parties which was created by the contract. [Citations.] (Bos Material Handling, Inc. v. Crown Controls Corp. (1982) 137 Cal.App.3d 99, 105-106, italics added; see also Marsch v. Williams (1994) 23 Cal.App.4th 250, 255.) According to Keenan, the public entity plaintiffs breach of fiduciary claims have their roots in the relationship created by the JPA Agreements. However, in this misguided attempt to apply the roots in the relationships theory to the instant case, Keenan overlooks the obvious: The named public entity plaintiffs and the People are not parties to the JPA Agreements. Keenan offers no case holding that the named plaintiffs can be required to arbitrate simply because their claims arise out of contractual relationships in which they were not parties.[8] In sum, Keenan has not produced any evidence that the JPAs and Keenan intended to give every beneficiary under the JPA Agreements, such as the named public entity plaintiffs, the right to sue under those agreements. It follows that the named plaintiffs cannot be bound to terms of contracts they did not sign and are not even entitled to enforce. 3. Equitable Estoppel We are not persuaded by Keenans renewed assertion that the named plaintiffs are bound to arbitrate their claims under a theory of equitable estoppel. Civil Code section 1589 provides, A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting. Civil Code section 3521 similarly provides, He who takes the benefit must bear the burden. Equitable estoppel precludes a party from asserting rights he otherwise would have had against another when his own conduct renders assertion of those rights contrary to equity... The federal circuits that have considered the doctrine of equitable estoppel have uniformly accepted it, in appropriate factual circumstances, as a basis for compelling signatories to a contract containing an arbitration clause to arbitrate their claims against nonsignatories... Although federal courts generally have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed, [citation], they have been hesitant to estop a nonsignatory seeking to avoid arbitration... ...Here, Keenan argues that the named plaintiffs are bound by the arbitration clauses in the JPA Agreements because their breach of fiduciary claim arises out Keenans services provided to the JPAs under the JPA Agreements. However, beyond this bare assertion, Keenan does not provide any argument supporting the application of estoppel or Civil Code section 1589 in this case. The breach of fiduciary duty claim against Keenan, while factually related to the JPA Agreements, is not inextricably intertwined with those agreements.[9] In sum, Keenan has failed to establish that the named plaintiffs claims are intertwined with the JPA Agreements or that the named plaintiffs have exploited those agreements to the degree that requires a finding of a direct benefit estoppel. (See Bridas S.A.P.I.C. v. Government of Turkmenistan, supra, 345 F.3d at pp. 361-362.) Accordingly, we conclude that neither the doctrine of equitable estoppel nor Civil Code section 1589 requires the named plaintiffs to arbitrate their claims against Keenan. 4. Government Code Section 6508.1 Keenan again argues that the named public entity plaintiffs are bound to the arbitration provisions by Government Code section 6508.1,[10]by virtue of their membership in the JPAs. We previously rejected this claim, finding neither section 6508.1 nor Tucker Land Co. v. State of California (2001) 94 Cal.App.4th 1191, 1200-1201 (holding debts of JPA are debts of constituent members unless otherwise agreed), cited by Keenan, compelled arbitration in this case. We reject this argument again, as Keenan provides no authority supporting the proposition that section 6508.1 grants JPAs the authority (express or implied) to bind its members to arbitration agreements in which they were not signatories. C. The BenefitBridge Agreement Does Not Require SFCCD to Arbitrate its Claims Asserted in the Fourth Amended Complaint Keenan insists that the trial court erred in denying its motion to compel SFCCD to arbitrate its claims asserted in the fourth amended complaint because those claims are encompassed within the BenefitBridge Agreement. We disagree. The arbitration provision in the BenefitBridge Agreement provides: Any and all disputes that may arise out of or relate to this Agreement, other agreements or any other relationship involving [SFCCD] and Keenan (whether occurring prior to, as part of, or after the signing of this Agreement), shall first be resolved by good faith negotiations between the parties with the assistance of non-binding mediation. In the event either party determines that they are not able to resolve the dispute through negotiation and mediation, then the dispute shall be submitted to, and resolved by, final and binding arbitration . . . . Negotiation, mediation and arbitration shall be the exclusive means of dispute resolution between [SFCCD] and Keenan and their respective agents, employees, officers and members. The issue of arbitrability is a matter of contract interpretation, which is a question of law we review de novo in the absence of conflicting evidence. (Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1527; Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.) Under either federal or state arbitration law, when deciding whether the parties agreed to arbitrate a certain dispute we look to ordinary state-law principles that govern the formation of contracts. [Citations.] (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944; see In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1104.) Accordingly, we apply ordinary rules of California contract interpretation to give effect to the mutual intent of the parties. If the contractual language is clear and explicit, it is determinative. (In re Tobacco Cases I, supra, 124 Cal.App.4th at p. 1104.) Here, the plain language of the BenefitBridge Agreement establishes that the arbitration requirement applies to [a]ny and all disputes that may arise out of . . . this Agreement,other agreements or any other relationship involving [SFCCD] and Keenan (whether occurring prior to, as part of, or after the signing of this Agreement) . . . . (Italics added.) Although the arbitration provision is undeniably broad in its scope, other contractual phrases within that provision limit its application to future claims, rather than preexisting ones... The BenefitBridge Agreement is a collateral services agreement between SFCCD and Keenan that is unrelated to allegations in the fourth amended complaint regarding Keenans purported misconduct in the procurement of insurance for its public entity clients... D. Herreras UCL Claim Is Not Subject to Arbitration Keenan argues that Herreras UCL claim is subject to arbitration because it is brought on behalf of the named public entity plaintiffs who derive their claims from the services provided to the JPAs through the JPA Agreements. This argument fails as a matter of fact and law. As a matter of fact, Herrera seeks an injunction and restitution on behalf of the People of the State of California... ; governments right to prosecute UCL claim is separate from, and not derivative of, the right of an individual victim of said unfair business practices... In so holding, the court reasoned that an action to enjoin deceptive business practices is undertaken for public, rather than private, benefit. ... Consequently, there is an inherent conflict between the public policy in favor of arbitration and the public policies protected by Business and Professions Code section 17200 injunctions that renders injunctive claims inarbitrable. (Id. at p. 316.)... We conclude there is no basis to compel arbitration of Herreras UCL claim. E. The Trial Court Did Not Err in Staying the Arbitration under the Claims Agreement Pending Resolution of the Nonarbitrable Claims In Keenan I, we held that the trial court did not err in applying Code of Civil Procedure section 1281.2, subdivision (c) (section 1281.2(c)), which stayed the arbitration under the Claims Agreement pending resolution of the nonarbitrable claims... We are unpersuaded by Keenans contention that section 1281.2(c) has not been triggered because it is the sole remaining defendant in the action... We also reject Keenans argument that section 1281.2(c) does not apply because the claims of the named plaintiffs do not arise out of the same transaction and involve no overlap of claims. In the underlying action, the named public entity plaintiffs each assert the same cause of action for breach of fiduciary duty against Keenan based on the allegations that Keenan abused its position of trust to obtain kickbacks, improper fees, and benefits from insurers to whom they steer insurance business for public entity clients. Similarly, Herreras unfair business practices claim is premised upon the same type of misconduct. In light of this factual overlap, the trial court did not abuse its discretion in staying the arbitration under the Claims Agreement. III. DISPOSITION The October 2006 order denying Keenans motions to compel arbitration is affirmed. SFUSD, SFCCD, TJPA, and Herrera are entitled to their costs on appeal. Reardon, J. We concur: Ruvolo, P.J. Rivera, J. |
| "...allegations that Keenan abused its position of trust to obtain kickbacks, improper fees, and benefits from insurers to whom they steer insurance business for public entity clients." |
San Francisco Unified
School Dist. v. Keenan &
Associates
IN THE COURT OF APPEAL OF
THE STATE OF CALIFORNIA FIRST
APPELLATE DISTRICT DIVISION
FOUR
May 15, 2007
SAN FRANCISCO UNIFIED SCHOOL
DISTRICT, PLAINTIFF AND
RESPONDENT,
v.
KEENAN & ASSOCIATES,
DEFENDANT AND APPELLANT.
(Alameda County Super. Ct. No.
RG04183334).
The opinion of the court was delivered
by: Reardon, J.
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.
Defendant Keenan & Associates
(Keenan) appeals from an order
denying its motion to compel plaintiff
San Francisco Unified School District
(SFUSD) to arbitrate its claims against
Keenan pursuant to arbitration
clauses contained in agreements
between Keenan and two joint powers
agencies (JPA's).*fn1 Although
SFUSD is a member of the JPA's, it is
not a signatory to the agreements
between Keenan and the JPA's.
Keenan, nonetheless, claims it is
entitled to enforce the arbitration
provisions because SFUSD is a third
party beneficiary of the contracts;
SFUSD, by reason of its membership
in the JPA's, is bound by Government
Code section 6508.1 to assume the
obligations of the JPA's; and the
principles of equitable estoppel and
agency apply. Keenan further claims
that all proceedings between it and
SFUSD should be stayed pending
completion of arbitration. Additionally,
Keenan appeals from an order
denying its motion for reconsideration
of the order denying its motion to
compel arbitration. We affirm the
orders denying Keenan's motion to
compel arbitration and motion for
reconsideration.
I. FACTUAL AND PROCEDURAL
BACKGROUND
A. The Parties
Keenan is an insurance broker that
helps public entities to purchase
insurance from insurers. Typically,
public entities, like SFUSD, purchase
their insurance as members of
insurance pools or JPA's. As part of its
services, Keenan also assists public
entities with operation of the JPA's. As
relevant here, Keenan acts as an
insurance broker for the Northern
California Regional Liability Excess
Fund Joint Powers Authority (Nor Cal)
and the Schools Association for
Excess Risk Joint Powers Authority
(SAFER). SFUSD is a member of Nor
Cal and SAFER.
B. The JPA Agreements
In 1998 and 2003, Keenan entered
into management services
agreements with Nor Cal (Nor Cal
Agreements); Keenan also entered
into a similar agreement with SAFER
in 2002 (SAFER Agreement). In the
Nor Cal Agreements and the SAFER
Agreement (collectively referred to as
the JPA Agreements), Keenan agreed
to provide services that included
general administration, underwriting
administration, claims administration,
and risk management services. The
JPA Agreements contain arbitration
clauses.
C. The Claims Agreements
In July 2004, Keenan entered into a
claims administration services
agreement with SFUSD, in which
Keenan agreed to administer property
or liability claims for SFUSD (Claims
Agreement). The Claims Agreement
contains an arbitration provision.
SFUSD is a signatory of the Claims
Agreement.
D. Initial Complaints Against Keenan
and First Motion to Compel Arbitration
In November 2004, the County of
Santa Clara filed a complaint on its
own behalf, on behalf of the general
public, and on behalf of other similarly
situated public entities, alleging
violations of Business and Professions
Code sections 17200 et seq. and
17500 et seq., and breach of fiduciary
duty against Keenan; Driver Alliant
Insurance Services, Inc. (Driver); and
Marsh & McLennan Companies, Inc.,
Marsh Inc., and Marsh USA, Inc.
(collectively, Marsh). The complaint
alleged that defendants are the
primary insurance brokers that serve
California counties, schools and cities.
The complaint further alleged that
defendants have abused their
positions of trust with their clients to
obtain kickbacks, improper fees, and
benefits from insurers to whom they
steer insurance business for public
entity clients.
In January 2005, the County of Santa
Clara filed an amended complaint,
alleging the same essential causes of
action and adding SFUSD as a
plaintiff. Keenan moved to compel
arbitration of SFUSD's claims against
it and to stay the trial court
proceedings. (See Code Civ. Proc., §
1281.4.)
In June 2005, the trial court granted in
part and denied in part Keenan's
motion to compel arbitration. The
court determined that SFUSD was not
bound by the JPA Agreements
because it was not a signatory of
those agreements. However, the court
granted Keenan's motion to compel
arbitration of claims arising solely in
connection with the Claims
Agreement, and stayed arbitration of
these claims pending resolution of
SFUSD's nonarbitrable claims. (Code
Civ. Proc., § 1281.2, subd. (c)
(hereafter section 1281.2(c).)
E. Initial Complaints Against Keenan
and First Motion to Compel Arbitration
In August 2005, SFUSD filed a second
amended complaint, alleging breach
of fiduciary duty; breach of contract;
breach of the implied covenant of
good faith and fair dealing; violation of
the Cartwright Act; and unjust
enrichment. In support of its causes of
action for breach of contract and
breach of the implied covenant of
good faith and fair dealing, SFUSD
alleged that it was an intended third
party beneficiary of the JPA
Agreements.
Keenan filed a motion for
reconsideration of the court's June
2005 order, arguing that SFUSD's
assertion that it was a third party
beneficiary of the JPA Agreements
was "a fact that did not exist" when it
originally brought its motion to compel
arbitration. Keenan further claimed
that SFUSD, as an asserted third
party beneficiary, was bound by the
JPA Agreements. Keenan also filed a
renewed motion to compel arbitration
regarding all of SFUSD's claims raised
in the second amended complaint.
Following Keenan's motions, SFUSD
filed a third amended complaint,
removing the claims for breach of
contract and breach of the implied
covenant of good faith and fair
dealing, and adding San Francisco
Community College District and
Tuolumne Joint Powers Authority as
plaintiffs.
In November 2005, the trial court
denied Keenan's motion for
reconsideration and renewed motion
to compel arbitration. The trial court
rejected Keenan's argument that
SFUSD's allegation of third party
beneficiary status in the second
amended complaint constituted new
facts for purposes of relief under
Code of Civil Procedure section 1008.
In so ruling, the court explained that
allegations regarding a party's status
are not admissions of fact, but rather
are "an articulation of a legal theory of
recovery, based on factual allegations
that did not substantively change from
the [first amended complaint] to the
[second amended complaint] (or the
proposed [third amended complaint])."
The court also noted that SFUSD had
withdrawn its contract causes of action
in its third amended complaint, and
was no longer asserting a theory of
recovery vis-...-vis the JPA
Agreements. The court further denied
Keenan's renewed motion to compel
arbitration because the "denial of
Keenan's earlier motion to compel
arbitration was based in large part on
the very limited language of the
arbitration provisions in the [JPA
Agreements], which, of course,
remains unchanged." In denying the
motion for reconsideration and the
motion to compel arbitration, the court
explained that nothing presented in
Keenan's motion compelled it "to
change its original conclusion that the
signatories to the agreements did not
intend that the members of the JPAs
be bound to arbitration."
II. DISCUSSION
A. Standard of Review and Applicable
Law
1. Standard of Review
"Whether an arbitration agreement
applies to a controversy is a question
of law to which the appellate court
applies its independent judgment
where no conflicting extrinsic evidence
in aid of the interpretation was
introduced in the trial court."
(Brookwood v. Bank of America
(1996) 45 Cal.App.4th 1667, 1670;
see NORCAL Mutual Ins. Co. v.
Newton (2000) 84 Cal.App.4th 64, 71
(NORCAL).) To the extent the issues
on appeal present factual questions
(see, e.g., Metalclad Corp. v. Ventana
Environmental Organizational
Partnership (2003) 109 Cal.App.4th
1705, 1716 [estoppel] (Metalclad);
Inglewood Teachers Assn. v. Public
Employment Relations Bd. (1991) 227
Cal.App.3d 767, 780 [agency]), they
require a review for substantial
evidence (NORCAL, supra, 84
Cal.App.4th at p. 71). Here, however,
there is no conflicting evidence, so the
issues remain questions of law to
which we apply de novo review. (van't
Rood v. County of Santa Clara (2003)
113 Cal.App.4th 549, 562; NORCAL,
supra, 84 Cal.App.4th at pp. 71-72.)
2. Applicability of the Federal
Arbitration Act
The Federal Arbitration Act (FAA)
applies to contractual arbitration in
written agreements that involve
interstate or foreign commerce. (9
U.S.C. §§ 1, 2.) Here, Keenan's
declarations in support of the motion
to compel arbitration stated that, as
part of its claims and administration
services, it interacts with out-of-state
insurers. (See Basura v. U.S. Home
Corp. (2002) 98 Cal.App.4th 1205,
1213-1214 [FAA applies to contracts
relating to interstate commerce]; see
also Allied-Bruce Terminex Cos. v.
Dobson (1995) 513 U.S. 265, 274).
Thus, inasmuch as the JPA
Agreements involve interstate
commerce, they are subject to the
FAA. (See Basura v. U.S. Home Corp.,
supra, at pp. 1213- 1214.) However,
the 2003 Nor Cal Agreement provides
that it is governed by California law.
The Claims Agreement similarly
contains a choice of California law
provision. Choice-of-law provisions
are given effect provided there is no
conflict with the policies underlying
federal law. (See Volt Info. Sciences v.
Leland Stanford Jr. U. (1989) 489 U.S.
468, 476 (Volt).) However, we point
out that in most areas, the FAA and
California state law overlap and the
difference between the two bodies of
law does not impact our analysis,
unless otherwise noted. (See
Rosenthal v. Great Western Fin.
Securities Corp. (1996) 14 Cal.4th
394, 406-407; Abramson v. Juniper
Networks, Inc. (2004) 115 Cal.App.4th
638, 651; Lagatree v. Luce, Forward,
Hamilton & Scripps (1999) 74
Cal.App.4th 1105, 1120-1121.)
B. The Trial Court Did Not Err in
Denying the Motions to Compel
Arbitration
1. General Principles
"Public policy favors arbitration as an
expedient and economical method of
resolving disputes, thus relieving
crowded civil courts. However,
arbitration assumes that the parties
have elected to use it as an
alternative to the judicial process.
[Citation]. Arbitration is consensual in
nature. The fundamental assumption
of arbitration is that it may be invoked
as an alternative to the settlement of
disputes by means other than the
judicial process solely because all
parties have chosen to arbitrate them.
[Citations.] Even the strong public
policy in favor of arbitration does not
extend to those who are not parties to
an arbitration agreement or who have
not authorized anyone to act for them
in executing such an agreement. `The
right to arbitration depends on a
contract.' [Citations.]" (County of
Contra Costa v. Kaiser Foundation
Health Plan, Inc. (1996) 47
Cal.App.4th 237, 244-245 (County of
Contra Costa).)
Therefore, as a general rule, a
nonsignatory is not bound by an
arbitration agreement. (See Westra v.
Marcus & Millichap Real Estate
Investment Brokerage Co., Inc. (2005)
129 Cal.App.4th 759, 763; Benasra v.
Marciano (2001) 92 Cal.App.4th 987,
990; County of Contra Costa, supra,
47 Cal.App.4th at p. 245; see also
Grundstad v. Ritt (7th Cir. 1997) 106
F.3d 201, 204.) However, there are
certain limited exceptions in which an
arbitration agreement can be
enforced against nonsignatories
under traditional principles of contract
and agency law. (See Boucher v.
Alliance Title Co., Inc. (2005) 127
Cal.App.4th 262, 268 (Boucher); see
also County of Contra Costa, supra,
47 Cal.App.4th at pp. 242-243; E.I.
DuPont de Nemours v. Rhone
Poulenc Fiber (3d Cir. 2001) 269 F.3d
187, 194-195 (DuPont); Letizia v.
Prudential Bache Securities, Inc. (9th
Cir. 1986) 802 F.2d 1185, 1187.)
For example, a nonsignatory has
been required to arbitrate a claim
because a benefit was conferred on
the nonsignatory as a result of a
contract making the nonsignatory a
third party beneficiary of the
arbitration agreement. (See County of
Contra Costa, supra, 47 Cal.App.4th
at p. 242; MS Dealer Service Corp. v.
Franklin (11th Cir. 1999) 177 F.3d
942, 947 [MS Dealer].) A second
exception exists when a nonsignatory
and one of the parties to the
arbitration agreement have a
pre-existing agency relationship. (See
Madden v. Kaiser Foundation
Hospitals (1976) 17 Cal.3d 699,
702-709; County of Contra Costa,
supra, 47 Cal.App.4th at p. 242.) A
third exception arises under the
doctrine of equitable estoppel. (See
Boucher, supra, 127 Cal.App.4th at p.
268; MS Dealer, supra, 177 F.3d at p.
947.) Keenan contends that each of
these exceptions is applicable in the
present case. Also, for the first time
on appeal, Keenan asserts that
Government Code section 6508.1
requires SFUSD to arbitrate its claims.
We address each claim in turn.
2. Third Party Beneficiary
Keenan maintains that SFUSD is
required to arbitrate under the JPA
Agreements because SFUSD alleged
it was a third party beneficiary to the
agreements in its second amended
complaint. We disagree.
DuPont, supra, 269 F.3d 187, is
analogous to the instant case. There,
as here, the defendants asserted that
the plaintiff was bound to arbitrate its
claims by reason of the plaintiff's
assertion in the initial complaint that it
was a third party beneficiary of the
contract. (Id. at p. 197.) Rejecting this
contention, the Third Circuit reasoned
that "although it was imprudent of
[plaintiff] to have alleged in its initial
Complaint that it was a third party
beneficiary of the [a]greement, the
question of its status is ultimately for
us to decide under applicable law."
(Ibid.)
So too here, while it may have been
imprudent for SFUSD to have alleged
in the second amended complaint that
it was a third party beneficiary of the
JPA Agreements, the question of its
status remains subject to
determination under applicable law.
Contrary to Keenan's assertion,
determination of third party
beneficiary status involves more than
mere allegations in a complaint. "A
third party beneficiary may enforce a
contract made for its benefit. (Civ.
Code, § 1559.) However, `[a] putative
third party's rights under a contract
are predicated upon the contracting
parties' intent to benefit' it. [Citation.]
Ascertaining this intent is a question
of ordinary contract interpretation.
[Citation.] Thus, `[t]he circumstance
that a literal contract interpretation
would result in a benefit to the third
party is not enough to entitle that
party to demand enforcement.'
[Citation.]" (Hess v. Ford Motor Co.
(2002) 27 Cal.4th 516, 524 (Hess).)
"Generally, it is a question of fact
whether a particular third person is an
intended beneficiary of a contract.
[Citation.] However, where, as here,
the issue can be answered by
interpreting the contract as a whole
and doing so in light of the
uncontradicted evidence . . . , the
issue becomes one of law that we
resolve independently." (Prouty v.
Gores Technology Group (2004) 121
Cal.App.4th 1225, 1233; see also
Hayes Children Leasing Co. v. NCR
Corp. (1995) 37 Cal.App.4th 775,
790.)
Here, the JPA Agreements are
identical in all material respects and
their language provides clear
guidance. The 1998 Nor Cal
Agreement contains the following
arbitration provision: "It is the
expectation of the parties [Nor Cal and
Keenan] that differences between
them shall be resolved privately,
professionally, and amicably. In the
event the parties are unable to
resolve a difference between them
concerning the application or
interpretation of this Agreement, the
issue in dispute shall be resolved by
binding arbitration as the exclusive
remedy of the parties. The parties
agree to abide by the then current
commercial arbitration rules of the
American Arbitration Association."
The 2003 Nor Cal Agreement contains
the following arbitration provision: "If
an irreconcilable difference of opinion
or claim should arise between [Nor
Cal] and [Keenan] as the interpreters
of any matter relating to this
AGREEMENT, such matter shall be
submitted to binding arbitration as the
sole remedy available to both parties.
Any such binding arbitration shall take
place as determined by the president
of [Nor Cal] and shall be conducted in
accordance with the then-current
rules of the American Arbitration
Association." The SAFER Agreement
contains a similar arbitration provision.
Applying the law of third party
beneficiaries to the language of the
JPA Agreements discloses no intent of
the JPA's and Keenan to benefit
SFUSD. The JPA Agreements provide
for various general administration,
underwriting administration, claims
administration, and risk management
services to be provided by Keenan as
requested by the JPA's. Keenan fails
to identify any language in the JPA
Agreements that supports its
assertion that SFUSD is a third party
beneficiary under those contracts.
Rather, Keenan relies on the generic
allegations of third party beneficiary
status asserted by SFUSD in its
second amended complaint.
A third party beneficiary contract must
either satisfy an obligation of the
promisee to pay money to the
beneficiary, or the circumstances
indicate the promisee intends to give
the beneficiary the benefit of the
promised performance. (Medical Staff
of Doctors Medical Center in Modesto
v. Kamil (2005) 132 Cal.App.4th 679,
685-686 citing 1 Witkin, Summary of
Cal. Law (9th ed. 1987) Contracts, §
655, pp. 594-595 [hospital medical
staff did not receive payment or health
care services under contract between
hospital and insurer; medical staff,
therefore, was not third party
beneficiary].) Keenan fails to show
that either of those circumstances
applies here.
All that has been established is that
SFUSD is a member of the JPA's that
separately contracted for Keenan's
services. This, however, is not
enough. " `[T]he fact that a person is
directly affected by the parties'
conduct, or that he may have a
substantial interest in a contract's
enforcement, does not make him a
third-party beneficiary.' [Citation.]"
(Bridas S.A.P.I.C. v. Government of
Turkmenistan (5th Cir. 2003) 345
F.3d 347, 362 (Bridas); see also
Jones v. Aetna Casualty & Surety Co.
(1994) 26 Cal.App.4th 1717,
1724-1725 ["[t]he fact that . . . the
contract, if carried out to its terms,
would inure to the third party's benefit,
is insufficient to entitle him or her to
demand enforcement"].) "In other
words, a benefitting third party is not
necessarily a third-party beneficiary."
(InterGen N.V. v. Grina (1st Cir. 2003)
344 F.3d 134, 147 (InterGen).)
The critical fact remains that the JPA
Agreements neither mention nor
manifest an intent to confer specific
legal rights upon SFUSD.
Consequently, Keenan may not
compel SFUSD to arbitrate its claims.
Keenan's third party beneficiary
argument fails for yet another,
perhaps more obvious, reason. None
of SFUSD's amended claims relate to
its alleged third party beneficiary
status; rather, SFUSD alleges that
Keenan breached its fiduciary duties
as a result of its receipt of kickbacks
and other improper fees, which also
violate the Cartwright Act and
constitute unjust enrichment. Those
claims, while arguably related to the
underlying JPA Agreements, do not
relate to any third party beneficiary
status created at the formation of the
those agreements. (See DuPont,
supra, 269 F.3d at p. 197; but see
Comer v. Micor, Inc. (9th Cir. 2006)
436 F.3d 1098, 1102-1103
[disagreeing with DuPont to extent it
applies principle not founded in
contract or agency law].) To the extent
Keenan relies on authority holding
that a plaintiff may not avoid the
consequences of allegations in a
complaint by omitting such allegations
in subsequent pleadings, this
authority is inapposite as it relates to
omissions of relevant facts within the
knowledge of the pleader. (See, e.g.,
Reichert v. General Ins. Co. (1968) 68
Cal.2d 822, 836-837 [status as a
bankrupt]; Pierce v. Lyman (1991) 1
Cal.App.4th 1093, 1109 [known party
to alleged civil conspiracy]; Zappas v.
King Williams Press, Inc. (1970) 10
Cal.App.3d 768, 771-772, 773-775
[unlicensed broker]; Kenworthy v.
Brown (1967) 248 Cal.App.2d 298,
302 [date of contract].) As discussed,
determination of third party
beneficiary status is a matter of
contract interpretation. (See Hess,
supra, 27 Cal.4th at p. 524.)
Finally, "[p]arties are presumed to be
contracting for themselves only."
(Bridas, supra, 345 F.3d at p. 362.)
This presumption is particularly
compelling, where, as here, a
signatory to a contract seeks to
compel a nonparty to arbitrate its
claims. "It is one thing to permit a
nonsignatory to relinquish his right to
a jury trial, but quite another to
compel him to do so." (Benasra v.
Marciano, supra, 92 Cal.App.4th at p.
991.) "[T]he right to pursue claims in a
judicial forum is a substantial right and
one not lightly to be deemed waived.
[Citations.]" (Marsch v. Williams
(1994) 23 Cal.App.4th 250, 254.)
Here, there is nothing in the JPA
Agreements establishing that SFUSD
agreed to waive the right to pursue its
claims in a judicial forum.
3. Agency
Keenan next claims that SFUSD is
bound to arbitrate its claims under
general principles of agency because
it is a member of Nor Cal and SAFER.
"An agent is one who represents
another, called the principal, in
dealings with third persons. Such
representation is called agency." (Civ.
Code, § 2295.) "An agency is either
actual or ostensible." (Id., § 2298.)
"An agency is actual when the agent
is really employed by the principal."
(Id., § 2299.) "An agency is ostensible
when the principal intentionally, or by
want of ordinary care, causes a third
person to believe another to be his
agent who is not really employed by
him." (Id., § 2300.) The party
asserting the agency has the burden
of proving both the existence of the
agency and the scope of the agent's
authority. (Inglewood Teachers Assn.
v. Public Employment Relations Bd.,
supra, 227 Cal.App.3d at p. 780.)
In the arbitration context, a
nonsignatory may be required to
arbitrate its claims where it is
established that the signatory to the
contract has the authority to bind the
nonsignatory in some manner. (See
County of Contra Costa, supra, 47
Cal.App.4th at p. 243.) That is not the
case here.
In County of Contra Costa, supra, 47
Cal.App.4th 237, this court reviewed
California case law regarding
circumstances in which nonsignatories
have been held bound by reason of a
pre-existing relationship between a
nonsignatory and a signatory. (Id. at
pp. 242- 243.) For example, spouses,
children and heirs of patients have
frequently been required to arbitrate
medical malpractice claims. (Ibid.)
Employees have also been required
to arbitrate pursuant to agreements
signed by their employers. (Id. at p.
243; Madden v. Kaiser Foundation
Hospitals, supra, 17 Cal.3d at pp.
702-709 [statutes granted state
employers implied authority to
contract for medical plan on
employees' behalf]; Harris v. Superior
Court (1986) 188 Cal.App.3d 475,
477 [employee asserting right to
arbitrate].) "Likewise, the general
partner of a limited partnership is
bound by the arbitration agreement
entered into by the partnership and a
third party. (Keller Construction Co. v.
Kashani (1990) 220 Cal.App.3d 222,
225-229 [].)" (County of Contra Costa,
supra, 47 Cal.App.4th at p. 243.)
The authority Keenan relies on is
inapposite. For example, in Dryer v.
Los Angeles Rams (1985) 40 Cal.3d
406, a player sued his football team
and four individual agents, alleging
that three of the four individuals were
sued in their capacities as owners,
operators and managing agents of the
team, and that all four of the
individuals were parties to (and had
breached) the player's contract with
the team. The individual defendants
were nonsignatories to contract
between the player and the team,
which included an arbitration
provision. (Id. at p. 418.) However, the
individual defendants, joined by the
team, petitioned to compel arbitration.
(Id. at pp. 409, 418.) In that context,
our Supreme Court said the individual
defendants were entitled to the benefit
of the arbitration provisions. (Ibid.)
Since SFUSD has not asked for the
benefit of the JPA Agreements'
arbitration provisions but has, to the
contrary, actively opposed arbitration,
Dryer is not applicable in the instant
case.
Similarly, Boys Club of San Fernando
Valley, Inc. v. Fidelity & Deposit Co.
(1992) 6 Cal.App.4th 1266 (Boys
Club), is equally unpersuasive. There,
a surety executed a performance
bond in favor of a youth group
assuring a contractor's performance
of a construction contract. (Id. at p.
1270.) The performance bond
incorporated by reference the
construction contract between the
youth group and the contractor, which
contained an arbitration clause. (Ibid.)
In a dispute between the youth club
and the contractor, the surety argued
that it was not bound to join the
arbitration. (Id. at pp. 1272-1273.)
Reversing the trial court's denial of
the petition to compel arbitration, the
appellate court held that the language
in the bond incorporating the contract
bound the surety to the arbitration
clause, even though the surety was
not a party to the original contract. (Id.
at p. 1273.) In so holding, the court
explained that "[a]n agreement need
not expressly provide for arbitration,
but may do so in a secondary
document which is incorporated by
reference. [Citation.]" (Id. at p. 1271.)
Boys Club is obviously
distinguishable. Contrary to Keenan's
assertion, this case does not support
finding an agency relationship
between the JPA's and SFUSD.
Rather, Boys Club stands for the
proposition that a party may be bound
by an arbitration clause in a contract
between other persons that has been
incorporated by reference into a
party's contract. (Boys Club, supra, 6
Cal.App.4th at p. 1271.) Here, no
comparable incorporation argument
exists. Finally, to the extent Keenan
relies on Madden v. Kaiser
Foundation Hospitals, supra, 17
Cal.3d 699, that, too, is
distinguishable. There, in addition to
the statutes granting the state
employer implied authority to contract
for medical plans on behalf of its
employees, the contract contained
express language binding the
employees to arbitration. (Id. at pp.
704-705.) Specifically, the contract
stated that " `[b]y electing medical and
hospital coverage pursuant to this
[a]greement, or accepting benefits
hereunder, all [m]embers . . . agree to
all terms, conditions and provisions
hereof.' " (Id. at p. 704.) In rejecting
the employee's argument that she was
not bound to arbitrate her medical
malpractice claims, the court
emphasized that "[t]he arbitration
agreement . . . bears equally on
Kaiser and the members." (Id. at p.
711.) Here, as correctly noted by the
trial court, nothing in the language of
the JPA Agreements demonstrates the
intent of the signatories to bind the
members of the JPA's in a similar
manner.
In sum, nothing in SFUSD's
relationship with the JPA's or the JPA
Agreements, subjects SFUSD to
arbitration agreements signed by Nor
Cal and SAFER.
4. Equitable Estoppel
Keenan claims that the doctrine of
equitable estoppel requires SFUSD to
arbitrate its claims. In a related
argument, Keenan, citing Civil Code
section 1589, contends that SFUSD
must arbitrate its claims because
SFUSD accepted the benefits of the
JPA Agreements and cannot avoid the
burden of those agreements.*fn2
Civil Code section 1589 provides in
relevant part, "A voluntary acceptance
of the benefit of a transaction is
equivalent to a consent to all the
obligations arising from it, so far as
the facts are known, or ought to be
known, to the person accepting."
Although not cited by Keenan, Civil
Code section 3521 similarly provides,
"He who takes the benefit must bear
the burden."
" `Equitable estoppel precludes a
party from asserting rights "he
otherwise would have had against
another" when his own conduct
renders assertion of those rights
contrary to equity.' ([Inter. Paper v.
Schwabedissen Maschinen & Anlagen
([4th Cir. 2000]) 206 F.3d [411,] 417-
418 [International Paper].) In the
arbitration context, a party who has
not signed a contract containing an
arbitration clause may nonetheless be
compelled to arbitrate when he seeks
enforcement of other provisions of the
same contract that benefit him. (Id. at
p. 418; NORCAL[,supra,] 84
Cal.App.4th [at p.] 81 [].)" (Metalclad,
supra, 109 Cal.App.4th at p. 1713.)
"Restated, the doctrine of estoppel
prevents a party from `having it both
ways.' [Citation.]" (Washington Mut.
Finance Group, LLC v. Bailey (5th Cir.
2004) 364 F.3d 260, 268.)
"The federal circuits that have
considered the doctrine of equitable
estoppel have uniformly accepted it, in
appropriate factual circumstances, as
a basis for compelling signatories to a
contract containing an arbitration
clause to arbitrate their claims against
nonsignatories. [Citations.]"
(Metalclad, supra, 109 Cal.App.4th at
p. 1714; see MS Dealer, supra, 177
F.3d at p. 947; Grigson v. Creative
Artists Agency (5th Cir. 2000) 210
F.3d 524, 527.) "[U]nder both federal
and California decisional authority, a
nonsignatory defendant may invoke
an arbitration clause to compel a
signatory plaintiff to arbitrate its claims
when the causes of action against the
nonsignatory are `intimately founded
in and intertwined' with the underlying
contract obligations. [Citations.]"
(Boucher, supra, 127 Cal.App.4th at
pp. 271-272.)
"Although federal courts generally
`have been willing to estop a signatory
from avoiding arbitration with a
nonsignatory when the issues the
nonsignatory is seeking to resolve in
arbitration are intertwined with the
agreement that the estopped party
has signed,' [citation], they have been
hesitant to estop a nonsignatory
seeking to avoid arbitration."
(InterGen, supra, 344 F.3d at pp.
145-146, second italics added.) In
such instances, "estoppel has been
limited to `cases [that] involve
non-signatories who, during the life of
the contract, have embraced the
contract despite their non-signatory
status but then, during litigation,
attempt to repudiate the arbitration
clause in the contract.' [(DuPont,
supra, 269 F.3d at p. 200]; accord
Am. Bureau of Shipping v. Tencara
Shipyard S.P.A. [(2d Cir. 1999)] 170
F.3d 349, 353 [] (holding a
nonsignatory bound by a contract
under which it received the direct
benefits of lower insurance rates and
the ability to sail under the French
Flag)." (InterGen, supra, 344 F.3d at
p. 146.) Under federal decisional law,
"[a] nonsignatory is estopped from
refusing to comply with an arbitration
clause `when it receives a "direct
benefit" from a contract containing an
arbitration clause.' [Citations.]"
(International Paper, supra, 206 F.3d
at p. 418.) "Direct benefits estoppel
applies when a nonsignatory
`knowingly exploits the agreement
containing the arbitration clause.'
[Citations.]" (Bridas, supra, 345 F.3d
at pp. 361-362.)
For example in International Paper,
supra, 206 F.3d 411, the Fourth
Circuit held that a nonsignatory was
estopped from avoiding arbitration
where it sued to enforce warranty
provisions in a contract. (Id. at pp.
413-414, 418.) There, a buyer of an
industrial saw brought suit against the
manufacturer of the saw on the basis
of a contract between the
manufacturer and the distributor of
the saw, which contained an
arbitration clause. (Id. at pp.
413-414.) The court concluded that
"the buyer cannot sue to enforce the
guarantees and warranties of the
distributor-manufacturer contract
without complying with its arbitration
provision . . . ." (Ibid.) In so holding,
the court reasoned: "The
[distributor-manufacturer] contract
provides part of the factual foundation
for every claim asserted by [buyer]
against [manufacturer]. In its amended
complaint, [buyer] alleges that
[manufacturer] failed to honor the
warranties in the
[distributor-manufacturer] contract,
and it seeks damages, revocation,
and rejection `in accordance with' that
contract. [Buyer's] entire case hinges
on its asserted rights under the
[distributor-manufacturer] contract; it
cannot seek to enforce those
contractual rights and avoid the
contract's requirement that `any
dispute arising out of' the contract be
arbitrated." (Id. at p. 418, italics
added.)
Primarily relying on International
Paper, supra, 206 F.3d 411, Keenan
argues that SFUSD is bound by the
arbitration clauses in the JPA
Agreements because SFUSD "is
knowingly relying on those very same
agreements to plead its case."
However, beyond asserting that
SFUSD "alleged it is a third-party
beneficiary of the JPA Agreements"
and "alleged the JPA Agreements
create fiduciary duties that are owed
directly from Keenan to SFUSD,"
Keenan does not provide any
argument supporting the application
of estoppel or Civil Code section 1589
in this case.
In the third amended complaint,
SFUSD asserts causes of action for
breach of fiduciary duty, violations of
the Cartwright Act, and unjust
enrichment. SFUSD's breach of
fiduciary duty claim against Keenan,
while factually related to the JPA
Agreements, are not inextricably
intertwined with those agreements.
Rather, the third amended complaint
alleges that Keenan, as an insurance
broker, has certain fiduciary and other
duties, including the duties of due
care, candor and loyalty, which arise
under California law.
Moreover, SFUSD has not inequitably
made use of or sought enforcement of
the JPA Agreements while denying the
applicability of the arbitration clauses
of those agreements. That SFUSD
may have initially alleged it was a third
party beneficiary under the JPA
Agreements is insufficient, standing
alone, to justify the application of
equitable estoppel, especially since
there is no evidence that the
contracting parties intended to benefit
SFUSD.
In sum, Keenan has failed to establish
that SFUSD's claims are "intertwined"
with the JPA Agreements or that
SFUSD has "exploited" those
agreements to the degree that
requires a finding of a "direct benefit"
estoppel. (See Bridas, supra, 345
F.3d at pp. 361-362.) Accordingly, we
conclude that neither the doctrine of
equitable estoppel nor Civil Code
section 1589 requires SFUSD to
arbitrate its claims against Keenan.
5. Government Code Section 6508.1
Keenan argues that SFUSD is bound
to the arbitration provisions by
Government Code section 6508.1 by
virtue of its membership in the JPA's.
Although Keenan did not suggest this
theory to the trial court, it presents
only a question of law and is therefore
cognizable in this appeal. (Sanchez v.
Truck Ins. Exchange (1994) 21
Cal.App.4th 1778, 1787.)
Government Code section 6508.1 is
part of the Joint Exercise of Powers
Act (see Gov. Code, § 6500 et seq.),
which authorizes public entities to form
JPA's, and provides as follows: "If the
agency is not one or more of the
parties to the agreement but is a
public entity, commission, or board
constituted pursuant to the
agreement, the debts, liabilities, and
obligations of the agency shall be
debts, liabilities, and obligations of the
parties to the agreement, unless the
agreement specifies otherwise. [¶] A
party to the agreement may
separately contract for, or assume
responsibility for, specific debts,
liabilities, or obligations of the
agency." (Italics added.)
Citing Tucker Land Co. v. State of
California (2001) 94 Cal.App.4th
1191, 1198 (Tucker), Keenan argues
that Government Code section 6508.1
imposes liability on SFUSD to arbitrate
its claims under the JPA Agreements.
Keenan's reliance on Tucker is
misplaced.
Tucker involved a declaratory relief
action in which a land company
sought a declaration that the
constituent members of a joint powers
agency were jointly and individually
liable for the obligations of the agency
to the plaintiff on an underlying
judgment in the plaintiff's favor; that
the State of California was liable to the
plaintiff because all constituent
members were state agencies; and
that the constituent members were
liable as alter egos of the joint powers
agency. (Tucker, supra, 94
Cal.App.4th at pp. 1194-1995.) The
appellate court affirmed the order
granting the defendants' motion for
summary judgment. (Id. at pp. 1193,
1196.) In so holding, the court
explained that the joint powers
agreement specified that its
constituent members were not liable
for the contractual obligations of the
joint powers agency, and did not
provide for liability other than that
borne by the joint powers agency
itself. (Id. at p. 1193.) The court
further held that Government Code
section 6508.1, which sets forth the
responsibility of constituent agencies
for the obligations of a joint powers
agency, means what it plainly says:
that the debts of the joint powers
agency are the debts of its constituent
entities unless the agreement
specifies otherwise. (Tucker, supra,
94 Cal.App.4th at pp. 1198,
1200-1201.) There, "the agreement
specified otherwise, i.e., that the
constituent entities would not be
responsible for the debts of the JPA."
(Id. at p. 1201.) It was further
established beyond dispute that there
was no liability on the part of the
constituent entities as alter egos. (Id.
at pp. 1201-1202.)
Tucker is factually distinguishable
from the instant case. There, unlike
here, the issue was not whether a
nonsignatory member could be bound
to arbitrate its claims under separate
contracts between the JPA's and
another party. Rather, the issue was
whether constituent members of a JPA
could be liable for the contractual
obligations of the JPA, where the joint
exercise of powers agreement
specified that the members were not
liable for such debts. (Tucker, 94
Cal.App.4th at pp. 1193-1194 & fn. 1.)
Even assuming arguendo, that the
joint exercise of powers agreement
between SFUSD and the JPA's*fn3 do
not contain any language opting out
of Government Code section 6508.1,
Keenan provides no authority, nor has
any been found by this court, which
supports the proposition that section
6508.1 grants JPA's the authority
(express or implied) to bind its
members to arbitration agreements in
which they were not signatories. We
decline to do so here.
C. The Trial Court Did Not Err in
Applying Code of Civil Procedure
Section 1281.2(c)
The trial court ordered that SFUSD's
claims that have arisen solely in
connection with Keenan's services
under the Claims Agreement for the
July 1, 2004 to June 30, 2005 term be
severed from its remaining claims and
submitted to arbitration. However,
pursuant to Code of Civil Procedure
section 1281.2(c), the trial court
stayed the arbitration pending the
resolution of SFUSD's nonarbitrable
claims. Keenan argues the trial court
erred by applying section 1281.2(c)
because the FAA (9 U.S.C. § 3) and
California law (Code Civ. Proc., §
1281.4) both mandate a stay of the
litigation pending completion of
arbitration. We disagree.
Section 3 of the FAA provides, "If any
suit or proceeding be brought in any
of the courts of the United States
upon any issue referable to arbitration
under an agreement in writing for
such arbitration, the court in which
such suit is pending, upon being
satisfied that the issue involved in
such suit or proceeding is referable to
arbitration under such an agreement,
shall on application of one of the
parties stay the trial of the action until
such arbitration has been had in
accordance with the terms of the
agreement . . . ." (9 U.S.C. § 3.)
However, where, as here, arbitration
under a contract containing a choice
of California law provision has been
ordered,*fn4 section 1281.2(c) may
be applied. Section 1281.2 provides,
"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, unless it
determines that: [¶] . . . [¶] (c) A party
to the arbitration agreement is also a
party to a pending court action or
special proceeding with a third party,
arising out of the same transaction or
series of related transactions and
there is a possibility of conflicting
rulings on a common issue of law or
fact." (§ 1281.2(c).) In this latter
circumstance, "the court (1) may
refuse to enforce the arbitration
agreement and may order intervention
or joinder of all parties in a single
action or special proceeding; (2) may
order intervention or joinder as to all
or only certain issues; (3) may order
arbitration among the parties who
have agreed to arbitration and stay
the pending court action or special
proceeding pending the outcome of
the arbitration proceeding; or (4) may
stay arbitration pending the outcome
of the court action or special
proceeding." (Ibid.) Case law has
recognized that section 1281.2(c)
does not contradict the FAA's policy of
favoring arbitration.
In Volt, supra, 489 U.S. 468, the
United States Supreme Court upheld
section 1281.2(c)'s application to an
arbitration provision governed by the
FAA. The contract at issue, a
construction agreement for work to be
performed in California, contained a
clause applying " `the law of the place
where the Project is located.' " (Volt,
supra, 489 U.S. at p. 470.) The high
court rejected a preemption claim,
declaring the FAA "do[es] not prevent
application of [section 1281.2(c)] to
stay arbitration where, as here, the
parties have agreed to arbitrate in
accordance with California law." (Volt,
supra, 489 U.S. at p. 477.) It also
acknowledged "California has taken
the lead in fashioning a legislative
response" governing "the special
practical problems that arise in
multiparty contractual disputes when
some or all of the contracts at issue
include agreements to arbitrate" (id. at
p. 476, fn. 5), and held, "[i]nterpreting
a choice-of-law clause to make
applicable state rules governing the
conduct of arbitration-rules which are
manifestly designed to encourage
resort to the arbitral process-simply
does not offend the rule of liberal
construction . . . , nor does it offend
any other policy embodied in the FAA"
(id. at p. 476, fn. omitted). In so
holding, the court explained, "[w]here,
as here, the parties have agreed to
abide by state rules of arbitration,
enforcing those rules according to the
terms of the agreement is fully
consistent with the goals of the FAA,
even if the result is that arbitration is
stayed where the [FAA] would
otherwise permit it to go forward." (Id.
at p. 479.)
California cases also support this
conclusion. In Mount Diablo Medical
Center v. Health Net of California, Inc.
(2002) 101 Cal.App.4th 711, 726-727
(Mount Diablo), another division of
this court affirmed the use of section
1281.2(c) to deny a motion seeking to
compel arbitration under an
agreement governed by the FAA.
There, the choice-of-law clause
provided that " `the validity,
construction, interpretation and
enforcement of this [a]greement' shall
be governed by California law."
(Mount Diablo, supra, 101 Cal.App.4th
at p. 722.) The court determined that
"[t]he choice-of-law provision in the
present case may be `generic' in the
sense that it does not mention
arbitration or any other specific issue
that might become a subject of
controversy, but it is nonetheless
broad, unqualified and
all-encompassing." (Ibid.) In affirming,
the court declared that "[s]section
1281.2(c) is not a provision designed
to limit the rights of parties who
choose to arbitrate or otherwise to
discourage the use of arbitration," but
"is part of California's statutory
scheme designed to enforce the
parties' arbitration agreements, as the
FAA requires." (Mount Diablo, supra,
101 Cal.App.4th at p. 726.)
Recently, the California Supreme
Court approved this interpretation of
section 1281.2(c) in Cronus
Investments, Inc. v. Concierge
Services (2005) 35 Cal.4th 376, 380,
387 (Cronus). There, the
choice-of-law provision provided: "
`This agreement shall be construed
and enforced in accordance with and
governed by the laws of the State of
California, without giving effect to the
conflict of laws provisions thereof.' "
(Ibid.) Also, the parties seemed to
"agree that the broad choice-of-law
provision generally incorporates
California law, including the California
Arbitration Act . . . [citation], of which
section 1281.2(c) is a part." (Ibid.)
The court held that section 1281.2(c)
is not a special rule limiting the
authority of arbitrators, but rather "an
evenhanded law that allows the trial
court to stay arbitration proceedings
while the concurrent lawsuit proceeds
or stay the lawsuit while arbitration
proceeds to avoid conflicting rulings
on common issues of fact and law
amongst interrelated parties." (Id. at p.
393, italics omitted.) Quoting Mount
Diablo, our Supreme Court explained
that section 1281.2(c) "addresses the
peculiar situation that arises when a
controversy also affects claims by or
against other parties not bound by the
arbitration agreement" and grants the
"court discretion not to enforce the
arbitration agreement under such
circumstances-in order to avoid
potential inconsistency in outcome as
well as duplication of effort . . . ." (Ibid.)
Keenan argues that Cronus and
Mount Diablo do not apply because
the contracts in those cases
specifically provided that the
agreements would be enforced under
California law. Here, the Claims
Agreement provides that it "shall be
governed by and interpreted in
accordance with the laws of the State
of California." Relying on
Mastrobuono v. Shearson Lehman
Hutton, Inc. (1995) 514 U.S. 52, 62
(Mastrobuono), Keenan argues that
generic choice-of-law provisions do
not incorporate state laws regarding
arbitration. The agreement in
Mastrobuono provided only that it "
`shall be governed by the laws of the
State of New York.' '' (Mastrobuono,
supra, 514 U.S. at p. 53.) "The
circumstances in Mastrobuono were
very different from those involved in
the present case. The issue there was
whether to apply New York decisional
law, which permitted punitive damages
to be awarded by courts but not by
arbitrators (the Garrity[*fn5 ]rule)."
(Mount Diablo, supra, 101 Cal.App.4th
at p. 719.) "The petitioners argued
that the FAA preempted the Garrity
rule, while the respondents relied on
Volt, arguing that the choice-of-law
provision incorporated state
arbitration rules, including the Garrity
rule. The high court responded: `At
most, the choice-of-law clause
introduces an ambiguity into an
arbitration agreement that would
otherwise allow punitive damage
awards. As we pointed out in Volt,
when a court interprets such
provisions in an agreement covered
by the FAA, "due regard must be
given to the federal policy favoring
arbitration, and ambiguities as to the
scope of the arbitration clause itself
resolved in favor of arbitration."
[Citations.]' (Mastrobuono, supra, 514
U.S at p. 62.) `We think the best way
to harmonize the choice-of- law
provision with the arbitration provision
is to read "the laws of the State of New
York" to encompass substantive
principles that New York courts would
apply, but not to include special rules
limiting the authority of arbitrators. . . .'
(Id. at pp. 63-64, italics added.)"
(Cronus, supra, 35 Cal.4th at pp.
392-393.)
However, section 1281.2(c), unlike the
New York rule involved in
Mastrobuono, does not involve a
special rule limiting the authority of
arbitrators. (Cronus, supra, 35 Cal.4th
at p. 393; Mount Diablo, supra, 101
Cal.App.4th at p. 726.) " `Rather, it is
part of California's statutory scheme
designed to enforce the parties'
arbitration agreements, as the FAA
requires. Section 1281.2(c) addresses
the peculiar situation that arises when
a controversy also affects claims by or
against other parties not bound by the
arbitration agreement. The California
provision giving the court discretion
not to enforce the arbitration
agreement under such
circumstances-in order to avoid
potential inconsistency in outcome as
well as duplication of effort-does not
contravene the letter or the spirit of
the FAA. That was the explicit holding
in Volt and nothing in Mastrobuono
casts doubt on that conclusion.'
(Mount Diablo, supra, 101 Cal.App.4th
at p. 726.)" (Cronus, supra, 35 Cal.4th
at p. 393.) Although the language in
the Claims Agreement differs from the
contracts in Cronus and Mount Diablo,
we find the underlying rationale of
applying section 1281.2(c) is,
nonetheless, applicable here. In other
words, common issues of fact and law
will be resolved consistently, and only
once. (Mount Diablo, supra, 101
Cal.App.4th at p. 727.)
We are similarly unpersuaded by
Keenan's contention that section
1281.2(c) has not been triggered
because SFUSD's claims against
Keenan and its claims against the
other defendants (Marsh and Driver)
do not arise out of the same
transaction and involve no overlap of
claims. The underlying action
challenges industry-wide kickback
practices alleged to be followed by all
of the defendants,*fn6 including
Keenan, vis-...-vis their dealings with
the respective public entities plaintiffs.
The trial court did not abuse its
discretion in applying section
1281.2(c) under these circumstances,
as it is possible that arbitration could
lead to conflicting rulings in this
multiparty action. (Code Civ. Proc., §
1281.2(c); see also Henry v. Alcove
Investment, Inc. (1991) 233
Cal.App.3d 94, 101-102; Green v. Mt.
Diablo Hospital Dist. (1989) 207
Cal.App.3d 63, 75.)
Finally, contrary to Keenan's
contention, Code of Civil Procedure
section 1281.4 does not mandate a
stay of the instant action. Where a
matter has been ordered to
arbitration, "the court in which such
action or proceeding is pending shall,
upon motion of a party . . . , stay the
action or proceeding until an
arbitration is had in accordance with
the order to arbitrate . . . ." (Code Civ.
Proc., § 1281.4.) "[O]ne of the
purposes of this statute `is to promote
the expeditious and efficient
settlement of disputes and eliminate
multiplicity of actions.' [Citations.]"
(McMillin Development, Inc. v. Home
Buyers Warranty (1998) 68
Cal.App.4th 896, 910-911; see also
Marcus v. Superior Court (1977) 75
Cal.App.3d 204, 211-212.) Here,
however, the determination of
SFUSD's nonarbitrable claims against
Keenan may make the arbitration
unnecessary. In other words, staying
the instant action pending the
resolution of the arbitrable claims
could result in the type of multiplicity
of actions Code of Civil Procedure
section 1281.4 is intended to prevent.
Accordingly, the trial court did not
abuse its discretion in applying
section 1281.2(c).
D. The Trial Court Did Not Err in
Denying the Motion for
Reconsideration
Finally, Keenan argues that the trial
court abused its discretion in denying
its motion for reconsideration.
Code of Civil Procedure section 1008,
subdivision (a), provides that a party
may seek reconsideration of an order
"based upon new or different facts,
circumstances, or law . . . ." Keenan
argues that SFUSD's allegations of
third party beneficiary status in the
second amended complaint
constituted "new facts" for purposes of
Code of Civil Procedure section 1008.
This contention is without merit.
As discussed, the determination of a
party's status as a third party
beneficiary is a matter of contract
interpretation. (Hess, supra, 27
Cal.4th at p. 524.) While the
resolution of this legal question
typically involves a question of fact, it,
nonetheless, remains a legal inquiry
for the court. (See Prouty v. Gores
Technology Group, supra, 121
Cal.App.4th at p. 1233; see also
DuPont, supra, 269 F.3d at p. 197;
Chacksfield v. L. A. County Flood etc.
Dist. (1966) 245 Cal.App.2d 193,
194-195 [no abuse of discretion in
sustaining demurrer without leave to
amend where cross-complaint alleged
"legal conclusion" regarding third
party beneficiary status].) Accordingly,
SFUSD's assertions in the second
amended complaint that it was a third
party beneficiary of the JPA
Agreements did not constitute new
"facts" justifying the granting of
Keenan's motion for reconsideration.
Moreover, the basis of the trial court's
denial of Keenan's prior motion to
compel arbitration "was based in large
part on the very limited language of
the arbitration provisions in the [JPA
Agreements], which, of course,
remain[ed] unchanged." The trial
court acted well within in its discretion
in denying Keenan's request for
reconsideration.
III. DISPOSITION
The orders denying Keenan's motion
to compel arbitration and motion for
reconsideration are affirmed. SFUSD
is entitled to its costs on appeal.
We concur: Ruvolo, P.J., Rivera, J.
Opinion Footnotes *fn1 A JPA is a
legally independent entity created by
a joint exercise of powers agreement
pursuant to Government Code section
6500 et seq.
*fn2 Keenan raises this argument for
the first time in its reply brief.
Normally, contentions raised for the
first time in a reply brief are ignored.
(See, e.g., Shade Foods, Inc. v.
Innovative Products Sales &
Marketing, Inc. (2000) 78 Cal.App.4th
847, 894- 895, fn. 10.) However, this
argument relates to Keenan's
equitable estoppel argument and
presents a legal question on
undisputed facts. (See Barton v. New
United Motor Manufacturing, Inc.
(1996) 43 Cal.App.4th 1200, 1207;
see also Metalclad, supra, 109
Cal.App.4th at p. 1716.) As such, we
consider this related argument on
appeal.
*fn3 Keenan incorrectly points to the
language of the JPA Agreements,
rather than the language of the joint
exercise of powers agreements in
which SFUSD agreed to become a
member of Nor Cal and SAFER.
Additionally, the record before us
contains only the joint exercise of
powers agreement between Nor Cal
and SFUSD.
*fn4 Keenan mistakenly relies on the
choice- of- law provisions in the JPA
Agreements because arbitration
under those agreements was denied.
In any event, the 2003 Nor Cal
Agreement contains a choice of
California law provision.
*fn5 Garrity v. Lyle Stuart, Inc. (1976)
40 N.Y.2d 354, 386.
*fn6 Keenan filed a request for judicial
notice along with its reply brief that
requests that we judicially notice a
fourth amended complaint in which
Keenan is the sole defendant, as well
as an additional class action filed by
the County of Santa Clara and the
People of the State of California
against Driver. Keenan claims that the
fourth amended complaint establishes
that SFUSD's claims arise out of and
are based on the JPA Agreements.
We deferred ruling until the time of
decision and now deny the request for
judicial notice. The fourth amended
complaint is the subject of a second
pending appeal by Keenan (case No.
A115994), which raises many of the
same arguments advanced in the
instant appeal. On March 27, 2007,
we denied Keenan's request to
consolidate the two appeals. Although
the analysis in this opinion may be
applicable to the pending appeal
regarding the fourth amended
complaint, we address only the
iterations of the complaints that are
before us.
School Dist. v. Keenan &
Associates
IN THE COURT OF APPEAL OF
THE STATE OF CALIFORNIA FIRST
APPELLATE DISTRICT DIVISION
FOUR
May 15, 2007
SAN FRANCISCO UNIFIED SCHOOL
DISTRICT, PLAINTIFF AND
RESPONDENT,
v.
KEENAN & ASSOCIATES,
DEFENDANT AND APPELLANT.
(Alameda County Super. Ct. No.
RG04183334).
The opinion of the court was delivered
by: Reardon, J.
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.
Defendant Keenan & Associates
(Keenan) appeals from an order
denying its motion to compel plaintiff
San Francisco Unified School District
(SFUSD) to arbitrate its claims against
Keenan pursuant to arbitration
clauses contained in agreements
between Keenan and two joint powers
agencies (JPA's).*fn1 Although
SFUSD is a member of the JPA's, it is
not a signatory to the agreements
between Keenan and the JPA's.
Keenan, nonetheless, claims it is
entitled to enforce the arbitration
provisions because SFUSD is a third
party beneficiary of the contracts;
SFUSD, by reason of its membership
in the JPA's, is bound by Government
Code section 6508.1 to assume the
obligations of the JPA's; and the
principles of equitable estoppel and
agency apply. Keenan further claims
that all proceedings between it and
SFUSD should be stayed pending
completion of arbitration. Additionally,
Keenan appeals from an order
denying its motion for reconsideration
of the order denying its motion to
compel arbitration. We affirm the
orders denying Keenan's motion to
compel arbitration and motion for
reconsideration.
I. FACTUAL AND PROCEDURAL
BACKGROUND
A. The Parties
Keenan is an insurance broker that
helps public entities to purchase
insurance from insurers. Typically,
public entities, like SFUSD, purchase
their insurance as members of
insurance pools or JPA's. As part of its
services, Keenan also assists public
entities with operation of the JPA's. As
relevant here, Keenan acts as an
insurance broker for the Northern
California Regional Liability Excess
Fund Joint Powers Authority (Nor Cal)
and the Schools Association for
Excess Risk Joint Powers Authority
(SAFER). SFUSD is a member of Nor
Cal and SAFER.
B. The JPA Agreements
In 1998 and 2003, Keenan entered
into management services
agreements with Nor Cal (Nor Cal
Agreements); Keenan also entered
into a similar agreement with SAFER
in 2002 (SAFER Agreement). In the
Nor Cal Agreements and the SAFER
Agreement (collectively referred to as
the JPA Agreements), Keenan agreed
to provide services that included
general administration, underwriting
administration, claims administration,
and risk management services. The
JPA Agreements contain arbitration
clauses.
C. The Claims Agreements
In July 2004, Keenan entered into a
claims administration services
agreement with SFUSD, in which
Keenan agreed to administer property
or liability claims for SFUSD (Claims
Agreement). The Claims Agreement
contains an arbitration provision.
SFUSD is a signatory of the Claims
Agreement.
D. Initial Complaints Against Keenan
and First Motion to Compel Arbitration
In November 2004, the County of
Santa Clara filed a complaint on its
own behalf, on behalf of the general
public, and on behalf of other similarly
situated public entities, alleging
violations of Business and Professions
Code sections 17200 et seq. and
17500 et seq., and breach of fiduciary
duty against Keenan; Driver Alliant
Insurance Services, Inc. (Driver); and
Marsh & McLennan Companies, Inc.,
Marsh Inc., and Marsh USA, Inc.
(collectively, Marsh). The complaint
alleged that defendants are the
primary insurance brokers that serve
California counties, schools and cities.
The complaint further alleged that
defendants have abused their
positions of trust with their clients to
obtain kickbacks, improper fees, and
benefits from insurers to whom they
steer insurance business for public
entity clients.
In January 2005, the County of Santa
Clara filed an amended complaint,
alleging the same essential causes of
action and adding SFUSD as a
plaintiff. Keenan moved to compel
arbitration of SFUSD's claims against
it and to stay the trial court
proceedings. (See Code Civ. Proc., §
1281.4.)
In June 2005, the trial court granted in
part and denied in part Keenan's
motion to compel arbitration. The
court determined that SFUSD was not
bound by the JPA Agreements
because it was not a signatory of
those agreements. However, the court
granted Keenan's motion to compel
arbitration of claims arising solely in
connection with the Claims
Agreement, and stayed arbitration of
these claims pending resolution of
SFUSD's nonarbitrable claims. (Code
Civ. Proc., § 1281.2, subd. (c)
(hereafter section 1281.2(c).)
E. Initial Complaints Against Keenan
and First Motion to Compel Arbitration
In August 2005, SFUSD filed a second
amended complaint, alleging breach
of fiduciary duty; breach of contract;
breach of the implied covenant of
good faith and fair dealing; violation of
the Cartwright Act; and unjust
enrichment. In support of its causes of
action for breach of contract and
breach of the implied covenant of
good faith and fair dealing, SFUSD
alleged that it was an intended third
party beneficiary of the JPA
Agreements.
Keenan filed a motion for
reconsideration of the court's June
2005 order, arguing that SFUSD's
assertion that it was a third party
beneficiary of the JPA Agreements
was "a fact that did not exist" when it
originally brought its motion to compel
arbitration. Keenan further claimed
that SFUSD, as an asserted third
party beneficiary, was bound by the
JPA Agreements. Keenan also filed a
renewed motion to compel arbitration
regarding all of SFUSD's claims raised
in the second amended complaint.
Following Keenan's motions, SFUSD
filed a third amended complaint,
removing the claims for breach of
contract and breach of the implied
covenant of good faith and fair
dealing, and adding San Francisco
Community College District and
Tuolumne Joint Powers Authority as
plaintiffs.
In November 2005, the trial court
denied Keenan's motion for
reconsideration and renewed motion
to compel arbitration. The trial court
rejected Keenan's argument that
SFUSD's allegation of third party
beneficiary status in the second
amended complaint constituted new
facts for purposes of relief under
Code of Civil Procedure section 1008.
In so ruling, the court explained that
allegations regarding a party's status
are not admissions of fact, but rather
are "an articulation of a legal theory of
recovery, based on factual allegations
that did not substantively change from
the [first amended complaint] to the
[second amended complaint] (or the
proposed [third amended complaint])."
The court also noted that SFUSD had
withdrawn its contract causes of action
in its third amended complaint, and
was no longer asserting a theory of
recovery vis-...-vis the JPA
Agreements. The court further denied
Keenan's renewed motion to compel
arbitration because the "denial of
Keenan's earlier motion to compel
arbitration was based in large part on
the very limited language of the
arbitration provisions in the [JPA
Agreements], which, of course,
remains unchanged." In denying the
motion for reconsideration and the
motion to compel arbitration, the court
explained that nothing presented in
Keenan's motion compelled it "to
change its original conclusion that the
signatories to the agreements did not
intend that the members of the JPAs
be bound to arbitration."
II. DISCUSSION
A. Standard of Review and Applicable
Law
1. Standard of Review
"Whether an arbitration agreement
applies to a controversy is a question
of law to which the appellate court
applies its independent judgment
where no conflicting extrinsic evidence
in aid of the interpretation was
introduced in the trial court."
(Brookwood v. Bank of America
(1996) 45 Cal.App.4th 1667, 1670;
see NORCAL Mutual Ins. Co. v.
Newton (2000) 84 Cal.App.4th 64, 71
(NORCAL).) To the extent the issues
on appeal present factual questions
(see, e.g., Metalclad Corp. v. Ventana
Environmental Organizational
Partnership (2003) 109 Cal.App.4th
1705, 1716 [estoppel] (Metalclad);
Inglewood Teachers Assn. v. Public
Employment Relations Bd. (1991) 227
Cal.App.3d 767, 780 [agency]), they
require a review for substantial
evidence (NORCAL, supra, 84
Cal.App.4th at p. 71). Here, however,
there is no conflicting evidence, so the
issues remain questions of law to
which we apply de novo review. (van't
Rood v. County of Santa Clara (2003)
113 Cal.App.4th 549, 562; NORCAL,
supra, 84 Cal.App.4th at pp. 71-72.)
2. Applicability of the Federal
Arbitration Act
The Federal Arbitration Act (FAA)
applies to contractual arbitration in
written agreements that involve
interstate or foreign commerce. (9
U.S.C. §§ 1, 2.) Here, Keenan's
declarations in support of the motion
to compel arbitration stated that, as
part of its claims and administration
services, it interacts with out-of-state
insurers. (See Basura v. U.S. Home
Corp. (2002) 98 Cal.App.4th 1205,
1213-1214 [FAA applies to contracts
relating to interstate commerce]; see
also Allied-Bruce Terminex Cos. v.
Dobson (1995) 513 U.S. 265, 274).
Thus, inasmuch as the JPA
Agreements involve interstate
commerce, they are subject to the
FAA. (See Basura v. U.S. Home Corp.,
supra, at pp. 1213- 1214.) However,
the 2003 Nor Cal Agreement provides
that it is governed by California law.
The Claims Agreement similarly
contains a choice of California law
provision. Choice-of-law provisions
are given effect provided there is no
conflict with the policies underlying
federal law. (See Volt Info. Sciences v.
Leland Stanford Jr. U. (1989) 489 U.S.
468, 476 (Volt).) However, we point
out that in most areas, the FAA and
California state law overlap and the
difference between the two bodies of
law does not impact our analysis,
unless otherwise noted. (See
Rosenthal v. Great Western Fin.
Securities Corp. (1996) 14 Cal.4th
394, 406-407; Abramson v. Juniper
Networks, Inc. (2004) 115 Cal.App.4th
638, 651; Lagatree v. Luce, Forward,
Hamilton & Scripps (1999) 74
Cal.App.4th 1105, 1120-1121.)
B. The Trial Court Did Not Err in
Denying the Motions to Compel
Arbitration
1. General Principles
"Public policy favors arbitration as an
expedient and economical method of
resolving disputes, thus relieving
crowded civil courts. However,
arbitration assumes that the parties
have elected to use it as an
alternative to the judicial process.
[Citation]. Arbitration is consensual in
nature. The fundamental assumption
of arbitration is that it may be invoked
as an alternative to the settlement of
disputes by means other than the
judicial process solely because all
parties have chosen to arbitrate them.
[Citations.] Even the strong public
policy in favor of arbitration does not
extend to those who are not parties to
an arbitration agreement or who have
not authorized anyone to act for them
in executing such an agreement. `The
right to arbitration depends on a
contract.' [Citations.]" (County of
Contra Costa v. Kaiser Foundation
Health Plan, Inc. (1996) 47
Cal.App.4th 237, 244-245 (County of
Contra Costa).)
Therefore, as a general rule, a
nonsignatory is not bound by an
arbitration agreement. (See Westra v.
Marcus & Millichap Real Estate
Investment Brokerage Co., Inc. (2005)
129 Cal.App.4th 759, 763; Benasra v.
Marciano (2001) 92 Cal.App.4th 987,
990; County of Contra Costa, supra,
47 Cal.App.4th at p. 245; see also
Grundstad v. Ritt (7th Cir. 1997) 106
F.3d 201, 204.) However, there are
certain limited exceptions in which an
arbitration agreement can be
enforced against nonsignatories
under traditional principles of contract
and agency law. (See Boucher v.
Alliance Title Co., Inc. (2005) 127
Cal.App.4th 262, 268 (Boucher); see
also County of Contra Costa, supra,
47 Cal.App.4th at pp. 242-243; E.I.
DuPont de Nemours v. Rhone
Poulenc Fiber (3d Cir. 2001) 269 F.3d
187, 194-195 (DuPont); Letizia v.
Prudential Bache Securities, Inc. (9th
Cir. 1986) 802 F.2d 1185, 1187.)
For example, a nonsignatory has
been required to arbitrate a claim
because a benefit was conferred on
the nonsignatory as a result of a
contract making the nonsignatory a
third party beneficiary of the
arbitration agreement. (See County of
Contra Costa, supra, 47 Cal.App.4th
at p. 242; MS Dealer Service Corp. v.
Franklin (11th Cir. 1999) 177 F.3d
942, 947 [MS Dealer].) A second
exception exists when a nonsignatory
and one of the parties to the
arbitration agreement have a
pre-existing agency relationship. (See
Madden v. Kaiser Foundation
Hospitals (1976) 17 Cal.3d 699,
702-709; County of Contra Costa,
supra, 47 Cal.App.4th at p. 242.) A
third exception arises under the
doctrine of equitable estoppel. (See
Boucher, supra, 127 Cal.App.4th at p.
268; MS Dealer, supra, 177 F.3d at p.
947.) Keenan contends that each of
these exceptions is applicable in the
present case. Also, for the first time
on appeal, Keenan asserts that
Government Code section 6508.1
requires SFUSD to arbitrate its claims.
We address each claim in turn.
2. Third Party Beneficiary
Keenan maintains that SFUSD is
required to arbitrate under the JPA
Agreements because SFUSD alleged
it was a third party beneficiary to the
agreements in its second amended
complaint. We disagree.
DuPont, supra, 269 F.3d 187, is
analogous to the instant case. There,
as here, the defendants asserted that
the plaintiff was bound to arbitrate its
claims by reason of the plaintiff's
assertion in the initial complaint that it
was a third party beneficiary of the
contract. (Id. at p. 197.) Rejecting this
contention, the Third Circuit reasoned
that "although it was imprudent of
[plaintiff] to have alleged in its initial
Complaint that it was a third party
beneficiary of the [a]greement, the
question of its status is ultimately for
us to decide under applicable law."
(Ibid.)
So too here, while it may have been
imprudent for SFUSD to have alleged
in the second amended complaint that
it was a third party beneficiary of the
JPA Agreements, the question of its
status remains subject to
determination under applicable law.
Contrary to Keenan's assertion,
determination of third party
beneficiary status involves more than
mere allegations in a complaint. "A
third party beneficiary may enforce a
contract made for its benefit. (Civ.
Code, § 1559.) However, `[a] putative
third party's rights under a contract
are predicated upon the contracting
parties' intent to benefit' it. [Citation.]
Ascertaining this intent is a question
of ordinary contract interpretation.
[Citation.] Thus, `[t]he circumstance
that a literal contract interpretation
would result in a benefit to the third
party is not enough to entitle that
party to demand enforcement.'
[Citation.]" (Hess v. Ford Motor Co.
(2002) 27 Cal.4th 516, 524 (Hess).)
"Generally, it is a question of fact
whether a particular third person is an
intended beneficiary of a contract.
[Citation.] However, where, as here,
the issue can be answered by
interpreting the contract as a whole
and doing so in light of the
uncontradicted evidence . . . , the
issue becomes one of law that we
resolve independently." (Prouty v.
Gores Technology Group (2004) 121
Cal.App.4th 1225, 1233; see also
Hayes Children Leasing Co. v. NCR
Corp. (1995) 37 Cal.App.4th 775,
790.)
Here, the JPA Agreements are
identical in all material respects and
their language provides clear
guidance. The 1998 Nor Cal
Agreement contains the following
arbitration provision: "It is the
expectation of the parties [Nor Cal and
Keenan] that differences between
them shall be resolved privately,
professionally, and amicably. In the
event the parties are unable to
resolve a difference between them
concerning the application or
interpretation of this Agreement, the
issue in dispute shall be resolved by
binding arbitration as the exclusive
remedy of the parties. The parties
agree to abide by the then current
commercial arbitration rules of the
American Arbitration Association."
The 2003 Nor Cal Agreement contains
the following arbitration provision: "If
an irreconcilable difference of opinion
or claim should arise between [Nor
Cal] and [Keenan] as the interpreters
of any matter relating to this
AGREEMENT, such matter shall be
submitted to binding arbitration as the
sole remedy available to both parties.
Any such binding arbitration shall take
place as determined by the president
of [Nor Cal] and shall be conducted in
accordance with the then-current
rules of the American Arbitration
Association." The SAFER Agreement
contains a similar arbitration provision.
Applying the law of third party
beneficiaries to the language of the
JPA Agreements discloses no intent of
the JPA's and Keenan to benefit
SFUSD. The JPA Agreements provide
for various general administration,
underwriting administration, claims
administration, and risk management
services to be provided by Keenan as
requested by the JPA's. Keenan fails
to identify any language in the JPA
Agreements that supports its
assertion that SFUSD is a third party
beneficiary under those contracts.
Rather, Keenan relies on the generic
allegations of third party beneficiary
status asserted by SFUSD in its
second amended complaint.
A third party beneficiary contract must
either satisfy an obligation of the
promisee to pay money to the
beneficiary, or the circumstances
indicate the promisee intends to give
the beneficiary the benefit of the
promised performance. (Medical Staff
of Doctors Medical Center in Modesto
v. Kamil (2005) 132 Cal.App.4th 679,
685-686 citing 1 Witkin, Summary of
Cal. Law (9th ed. 1987) Contracts, §
655, pp. 594-595 [hospital medical
staff did not receive payment or health
care services under contract between
hospital and insurer; medical staff,
therefore, was not third party
beneficiary].) Keenan fails to show
that either of those circumstances
applies here.
All that has been established is that
SFUSD is a member of the JPA's that
separately contracted for Keenan's
services. This, however, is not
enough. " `[T]he fact that a person is
directly affected by the parties'
conduct, or that he may have a
substantial interest in a contract's
enforcement, does not make him a
third-party beneficiary.' [Citation.]"
(Bridas S.A.P.I.C. v. Government of
Turkmenistan (5th Cir. 2003) 345
F.3d 347, 362 (Bridas); see also
Jones v. Aetna Casualty & Surety Co.
(1994) 26 Cal.App.4th 1717,
1724-1725 ["[t]he fact that . . . the
contract, if carried out to its terms,
would inure to the third party's benefit,
is insufficient to entitle him or her to
demand enforcement"].) "In other
words, a benefitting third party is not
necessarily a third-party beneficiary."
(InterGen N.V. v. Grina (1st Cir. 2003)
344 F.3d 134, 147 (InterGen).)
The critical fact remains that the JPA
Agreements neither mention nor
manifest an intent to confer specific
legal rights upon SFUSD.
Consequently, Keenan may not
compel SFUSD to arbitrate its claims.
Keenan's third party beneficiary
argument fails for yet another,
perhaps more obvious, reason. None
of SFUSD's amended claims relate to
its alleged third party beneficiary
status; rather, SFUSD alleges that
Keenan breached its fiduciary duties
as a result of its receipt of kickbacks
and other improper fees, which also
violate the Cartwright Act and
constitute unjust enrichment. Those
claims, while arguably related to the
underlying JPA Agreements, do not
relate to any third party beneficiary
status created at the formation of the
those agreements. (See DuPont,
supra, 269 F.3d at p. 197; but see
Comer v. Micor, Inc. (9th Cir. 2006)
436 F.3d 1098, 1102-1103
[disagreeing with DuPont to extent it
applies principle not founded in
contract or agency law].) To the extent
Keenan relies on authority holding
that a plaintiff may not avoid the
consequences of allegations in a
complaint by omitting such allegations
in subsequent pleadings, this
authority is inapposite as it relates to
omissions of relevant facts within the
knowledge of the pleader. (See, e.g.,
Reichert v. General Ins. Co. (1968) 68
Cal.2d 822, 836-837 [status as a
bankrupt]; Pierce v. Lyman (1991) 1
Cal.App.4th 1093, 1109 [known party
to alleged civil conspiracy]; Zappas v.
King Williams Press, Inc. (1970) 10
Cal.App.3d 768, 771-772, 773-775
[unlicensed broker]; Kenworthy v.
Brown (1967) 248 Cal.App.2d 298,
302 [date of contract].) As discussed,
determination of third party
beneficiary status is a matter of
contract interpretation. (See Hess,
supra, 27 Cal.4th at p. 524.)
Finally, "[p]arties are presumed to be
contracting for themselves only."
(Bridas, supra, 345 F.3d at p. 362.)
This presumption is particularly
compelling, where, as here, a
signatory to a contract seeks to
compel a nonparty to arbitrate its
claims. "It is one thing to permit a
nonsignatory to relinquish his right to
a jury trial, but quite another to
compel him to do so." (Benasra v.
Marciano, supra, 92 Cal.App.4th at p.
991.) "[T]he right to pursue claims in a
judicial forum is a substantial right and
one not lightly to be deemed waived.
[Citations.]" (Marsch v. Williams
(1994) 23 Cal.App.4th 250, 254.)
Here, there is nothing in the JPA
Agreements establishing that SFUSD
agreed to waive the right to pursue its
claims in a judicial forum.
3. Agency
Keenan next claims that SFUSD is
bound to arbitrate its claims under
general principles of agency because
it is a member of Nor Cal and SAFER.
"An agent is one who represents
another, called the principal, in
dealings with third persons. Such
representation is called agency." (Civ.
Code, § 2295.) "An agency is either
actual or ostensible." (Id., § 2298.)
"An agency is actual when the agent
is really employed by the principal."
(Id., § 2299.) "An agency is ostensible
when the principal intentionally, or by
want of ordinary care, causes a third
person to believe another to be his
agent who is not really employed by
him." (Id., § 2300.) The party
asserting the agency has the burden
of proving both the existence of the
agency and the scope of the agent's
authority. (Inglewood Teachers Assn.
v. Public Employment Relations Bd.,
supra, 227 Cal.App.3d at p. 780.)
In the arbitration context, a
nonsignatory may be required to
arbitrate its claims where it is
established that the signatory to the
contract has the authority to bind the
nonsignatory in some manner. (See
County of Contra Costa, supra, 47
Cal.App.4th at p. 243.) That is not the
case here.
In County of Contra Costa, supra, 47
Cal.App.4th 237, this court reviewed
California case law regarding
circumstances in which nonsignatories
have been held bound by reason of a
pre-existing relationship between a
nonsignatory and a signatory. (Id. at
pp. 242- 243.) For example, spouses,
children and heirs of patients have
frequently been required to arbitrate
medical malpractice claims. (Ibid.)
Employees have also been required
to arbitrate pursuant to agreements
signed by their employers. (Id. at p.
243; Madden v. Kaiser Foundation
Hospitals, supra, 17 Cal.3d at pp.
702-709 [statutes granted state
employers implied authority to
contract for medical plan on
employees' behalf]; Harris v. Superior
Court (1986) 188 Cal.App.3d 475,
477 [employee asserting right to
arbitrate].) "Likewise, the general
partner of a limited partnership is
bound by the arbitration agreement
entered into by the partnership and a
third party. (Keller Construction Co. v.
Kashani (1990) 220 Cal.App.3d 222,
225-229 [].)" (County of Contra Costa,
supra, 47 Cal.App.4th at p. 243.)
The authority Keenan relies on is
inapposite. For example, in Dryer v.
Los Angeles Rams (1985) 40 Cal.3d
406, a player sued his football team
and four individual agents, alleging
that three of the four individuals were
sued in their capacities as owners,
operators and managing agents of the
team, and that all four of the
individuals were parties to (and had
breached) the player's contract with
the team. The individual defendants
were nonsignatories to contract
between the player and the team,
which included an arbitration
provision. (Id. at p. 418.) However, the
individual defendants, joined by the
team, petitioned to compel arbitration.
(Id. at pp. 409, 418.) In that context,
our Supreme Court said the individual
defendants were entitled to the benefit
of the arbitration provisions. (Ibid.)
Since SFUSD has not asked for the
benefit of the JPA Agreements'
arbitration provisions but has, to the
contrary, actively opposed arbitration,
Dryer is not applicable in the instant
case.
Similarly, Boys Club of San Fernando
Valley, Inc. v. Fidelity & Deposit Co.
(1992) 6 Cal.App.4th 1266 (Boys
Club), is equally unpersuasive. There,
a surety executed a performance
bond in favor of a youth group
assuring a contractor's performance
of a construction contract. (Id. at p.
1270.) The performance bond
incorporated by reference the
construction contract between the
youth group and the contractor, which
contained an arbitration clause. (Ibid.)
In a dispute between the youth club
and the contractor, the surety argued
that it was not bound to join the
arbitration. (Id. at pp. 1272-1273.)
Reversing the trial court's denial of
the petition to compel arbitration, the
appellate court held that the language
in the bond incorporating the contract
bound the surety to the arbitration
clause, even though the surety was
not a party to the original contract. (Id.
at p. 1273.) In so holding, the court
explained that "[a]n agreement need
not expressly provide for arbitration,
but may do so in a secondary
document which is incorporated by
reference. [Citation.]" (Id. at p. 1271.)
Boys Club is obviously
distinguishable. Contrary to Keenan's
assertion, this case does not support
finding an agency relationship
between the JPA's and SFUSD.
Rather, Boys Club stands for the
proposition that a party may be bound
by an arbitration clause in a contract
between other persons that has been
incorporated by reference into a
party's contract. (Boys Club, supra, 6
Cal.App.4th at p. 1271.) Here, no
comparable incorporation argument
exists. Finally, to the extent Keenan
relies on Madden v. Kaiser
Foundation Hospitals, supra, 17
Cal.3d 699, that, too, is
distinguishable. There, in addition to
the statutes granting the state
employer implied authority to contract
for medical plans on behalf of its
employees, the contract contained
express language binding the
employees to arbitration. (Id. at pp.
704-705.) Specifically, the contract
stated that " `[b]y electing medical and
hospital coverage pursuant to this
[a]greement, or accepting benefits
hereunder, all [m]embers . . . agree to
all terms, conditions and provisions
hereof.' " (Id. at p. 704.) In rejecting
the employee's argument that she was
not bound to arbitrate her medical
malpractice claims, the court
emphasized that "[t]he arbitration
agreement . . . bears equally on
Kaiser and the members." (Id. at p.
711.) Here, as correctly noted by the
trial court, nothing in the language of
the JPA Agreements demonstrates the
intent of the signatories to bind the
members of the JPA's in a similar
manner.
In sum, nothing in SFUSD's
relationship with the JPA's or the JPA
Agreements, subjects SFUSD to
arbitration agreements signed by Nor
Cal and SAFER.
4. Equitable Estoppel
Keenan claims that the doctrine of
equitable estoppel requires SFUSD to
arbitrate its claims. In a related
argument, Keenan, citing Civil Code
section 1589, contends that SFUSD
must arbitrate its claims because
SFUSD accepted the benefits of the
JPA Agreements and cannot avoid the
burden of those agreements.*fn2
Civil Code section 1589 provides in
relevant part, "A voluntary acceptance
of the benefit of a transaction is
equivalent to a consent to all the
obligations arising from it, so far as
the facts are known, or ought to be
known, to the person accepting."
Although not cited by Keenan, Civil
Code section 3521 similarly provides,
"He who takes the benefit must bear
the burden."
" `Equitable estoppel precludes a
party from asserting rights "he
otherwise would have had against
another" when his own conduct
renders assertion of those rights
contrary to equity.' ([Inter. Paper v.
Schwabedissen Maschinen & Anlagen
([4th Cir. 2000]) 206 F.3d [411,] 417-
418 [International Paper].) In the
arbitration context, a party who has
not signed a contract containing an
arbitration clause may nonetheless be
compelled to arbitrate when he seeks
enforcement of other provisions of the
same contract that benefit him. (Id. at
p. 418; NORCAL[,supra,] 84
Cal.App.4th [at p.] 81 [].)" (Metalclad,
supra, 109 Cal.App.4th at p. 1713.)
"Restated, the doctrine of estoppel
prevents a party from `having it both
ways.' [Citation.]" (Washington Mut.
Finance Group, LLC v. Bailey (5th Cir.
2004) 364 F.3d 260, 268.)
"The federal circuits that have
considered the doctrine of equitable
estoppel have uniformly accepted it, in
appropriate factual circumstances, as
a basis for compelling signatories to a
contract containing an arbitration
clause to arbitrate their claims against
nonsignatories. [Citations.]"
(Metalclad, supra, 109 Cal.App.4th at
p. 1714; see MS Dealer, supra, 177
F.3d at p. 947; Grigson v. Creative
Artists Agency (5th Cir. 2000) 210
F.3d 524, 527.) "[U]nder both federal
and California decisional authority, a
nonsignatory defendant may invoke
an arbitration clause to compel a
signatory plaintiff to arbitrate its claims
when the causes of action against the
nonsignatory are `intimately founded
in and intertwined' with the underlying
contract obligations. [Citations.]"
(Boucher, supra, 127 Cal.App.4th at
pp. 271-272.)
"Although federal courts generally
`have been willing to estop a signatory
from avoiding arbitration with a
nonsignatory when the issues the
nonsignatory is seeking to resolve in
arbitration are intertwined with the
agreement that the estopped party
has signed,' [citation], they have been
hesitant to estop a nonsignatory
seeking to avoid arbitration."
(InterGen, supra, 344 F.3d at pp.
145-146, second italics added.) In
such instances, "estoppel has been
limited to `cases [that] involve
non-signatories who, during the life of
the contract, have embraced the
contract despite their non-signatory
status but then, during litigation,
attempt to repudiate the arbitration
clause in the contract.' [(DuPont,
supra, 269 F.3d at p. 200]; accord
Am. Bureau of Shipping v. Tencara
Shipyard S.P.A. [(2d Cir. 1999)] 170
F.3d 349, 353 [] (holding a
nonsignatory bound by a contract
under which it received the direct
benefits of lower insurance rates and
the ability to sail under the French
Flag)." (InterGen, supra, 344 F.3d at
p. 146.) Under federal decisional law,
"[a] nonsignatory is estopped from
refusing to comply with an arbitration
clause `when it receives a "direct
benefit" from a contract containing an
arbitration clause.' [Citations.]"
(International Paper, supra, 206 F.3d
at p. 418.) "Direct benefits estoppel
applies when a nonsignatory
`knowingly exploits the agreement
containing the arbitration clause.'
[Citations.]" (Bridas, supra, 345 F.3d
at pp. 361-362.)
For example in International Paper,
supra, 206 F.3d 411, the Fourth
Circuit held that a nonsignatory was
estopped from avoiding arbitration
where it sued to enforce warranty
provisions in a contract. (Id. at pp.
413-414, 418.) There, a buyer of an
industrial saw brought suit against the
manufacturer of the saw on the basis
of a contract between the
manufacturer and the distributor of
the saw, which contained an
arbitration clause. (Id. at pp.
413-414.) The court concluded that
"the buyer cannot sue to enforce the
guarantees and warranties of the
distributor-manufacturer contract
without complying with its arbitration
provision . . . ." (Ibid.) In so holding,
the court reasoned: "The
[distributor-manufacturer] contract
provides part of the factual foundation
for every claim asserted by [buyer]
against [manufacturer]. In its amended
complaint, [buyer] alleges that
[manufacturer] failed to honor the
warranties in the
[distributor-manufacturer] contract,
and it seeks damages, revocation,
and rejection `in accordance with' that
contract. [Buyer's] entire case hinges
on its asserted rights under the
[distributor-manufacturer] contract; it
cannot seek to enforce those
contractual rights and avoid the
contract's requirement that `any
dispute arising out of' the contract be
arbitrated." (Id. at p. 418, italics
added.)
Primarily relying on International
Paper, supra, 206 F.3d 411, Keenan
argues that SFUSD is bound by the
arbitration clauses in the JPA
Agreements because SFUSD "is
knowingly relying on those very same
agreements to plead its case."
However, beyond asserting that
SFUSD "alleged it is a third-party
beneficiary of the JPA Agreements"
and "alleged the JPA Agreements
create fiduciary duties that are owed
directly from Keenan to SFUSD,"
Keenan does not provide any
argument supporting the application
of estoppel or Civil Code section 1589
in this case.
In the third amended complaint,
SFUSD asserts causes of action for
breach of fiduciary duty, violations of
the Cartwright Act, and unjust
enrichment. SFUSD's breach of
fiduciary duty claim against Keenan,
while factually related to the JPA
Agreements, are not inextricably
intertwined with those agreements.
Rather, the third amended complaint
alleges that Keenan, as an insurance
broker, has certain fiduciary and other
duties, including the duties of due
care, candor and loyalty, which arise
under California law.
Moreover, SFUSD has not inequitably
made use of or sought enforcement of
the JPA Agreements while denying the
applicability of the arbitration clauses
of those agreements. That SFUSD
may have initially alleged it was a third
party beneficiary under the JPA
Agreements is insufficient, standing
alone, to justify the application of
equitable estoppel, especially since
there is no evidence that the
contracting parties intended to benefit
SFUSD.
In sum, Keenan has failed to establish
that SFUSD's claims are "intertwined"
with the JPA Agreements or that
SFUSD has "exploited" those
agreements to the degree that
requires a finding of a "direct benefit"
estoppel. (See Bridas, supra, 345
F.3d at pp. 361-362.) Accordingly, we
conclude that neither the doctrine of
equitable estoppel nor Civil Code
section 1589 requires SFUSD to
arbitrate its claims against Keenan.
5. Government Code Section 6508.1
Keenan argues that SFUSD is bound
to the arbitration provisions by
Government Code section 6508.1 by
virtue of its membership in the JPA's.
Although Keenan did not suggest this
theory to the trial court, it presents
only a question of law and is therefore
cognizable in this appeal. (Sanchez v.
Truck Ins. Exchange (1994) 21
Cal.App.4th 1778, 1787.)
Government Code section 6508.1 is
part of the Joint Exercise of Powers
Act (see Gov. Code, § 6500 et seq.),
which authorizes public entities to form
JPA's, and provides as follows: "If the
agency is not one or more of the
parties to the agreement but is a
public entity, commission, or board
constituted pursuant to the
agreement, the debts, liabilities, and
obligations of the agency shall be
debts, liabilities, and obligations of the
parties to the agreement, unless the
agreement specifies otherwise. [¶] A
party to the agreement may
separately contract for, or assume
responsibility for, specific debts,
liabilities, or obligations of the
agency." (Italics added.)
Citing Tucker Land Co. v. State of
California (2001) 94 Cal.App.4th
1191, 1198 (Tucker), Keenan argues
that Government Code section 6508.1
imposes liability on SFUSD to arbitrate
its claims under the JPA Agreements.
Keenan's reliance on Tucker is
misplaced.
Tucker involved a declaratory relief
action in which a land company
sought a declaration that the
constituent members of a joint powers
agency were jointly and individually
liable for the obligations of the agency
to the plaintiff on an underlying
judgment in the plaintiff's favor; that
the State of California was liable to the
plaintiff because all constituent
members were state agencies; and
that the constituent members were
liable as alter egos of the joint powers
agency. (Tucker, supra, 94
Cal.App.4th at pp. 1194-1995.) The
appellate court affirmed the order
granting the defendants' motion for
summary judgment. (Id. at pp. 1193,
1196.) In so holding, the court
explained that the joint powers
agreement specified that its
constituent members were not liable
for the contractual obligations of the
joint powers agency, and did not
provide for liability other than that
borne by the joint powers agency
itself. (Id. at p. 1193.) The court
further held that Government Code
section 6508.1, which sets forth the
responsibility of constituent agencies
for the obligations of a joint powers
agency, means what it plainly says:
that the debts of the joint powers
agency are the debts of its constituent
entities unless the agreement
specifies otherwise. (Tucker, supra,
94 Cal.App.4th at pp. 1198,
1200-1201.) There, "the agreement
specified otherwise, i.e., that the
constituent entities would not be
responsible for the debts of the JPA."
(Id. at p. 1201.) It was further
established beyond dispute that there
was no liability on the part of the
constituent entities as alter egos. (Id.
at pp. 1201-1202.)
Tucker is factually distinguishable
from the instant case. There, unlike
here, the issue was not whether a
nonsignatory member could be bound
to arbitrate its claims under separate
contracts between the JPA's and
another party. Rather, the issue was
whether constituent members of a JPA
could be liable for the contractual
obligations of the JPA, where the joint
exercise of powers agreement
specified that the members were not
liable for such debts. (Tucker, 94
Cal.App.4th at pp. 1193-1194 & fn. 1.)
Even assuming arguendo, that the
joint exercise of powers agreement
between SFUSD and the JPA's*fn3 do
not contain any language opting out
of Government Code section 6508.1,
Keenan provides no authority, nor has
any been found by this court, which
supports the proposition that section
6508.1 grants JPA's the authority
(express or implied) to bind its
members to arbitration agreements in
which they were not signatories. We
decline to do so here.
C. The Trial Court Did Not Err in
Applying Code of Civil Procedure
Section 1281.2(c)
The trial court ordered that SFUSD's
claims that have arisen solely in
connection with Keenan's services
under the Claims Agreement for the
July 1, 2004 to June 30, 2005 term be
severed from its remaining claims and
submitted to arbitration. However,
pursuant to Code of Civil Procedure
section 1281.2(c), the trial court
stayed the arbitration pending the
resolution of SFUSD's nonarbitrable
claims. Keenan argues the trial court
erred by applying section 1281.2(c)
because the FAA (9 U.S.C. § 3) and
California law (Code Civ. Proc., §
1281.4) both mandate a stay of the
litigation pending completion of
arbitration. We disagree.
Section 3 of the FAA provides, "If any
suit or proceeding be brought in any
of the courts of the United States
upon any issue referable to arbitration
under an agreement in writing for
such arbitration, the court in which
such suit is pending, upon being
satisfied that the issue involved in
such suit or proceeding is referable to
arbitration under such an agreement,
shall on application of one of the
parties stay the trial of the action until
such arbitration has been had in
accordance with the terms of the
agreement . . . ." (9 U.S.C. § 3.)
However, where, as here, arbitration
under a contract containing a choice
of California law provision has been
ordered,*fn4 section 1281.2(c) may
be applied. Section 1281.2 provides,
"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, unless it
determines that: [¶] . . . [¶] (c) A party
to the arbitration agreement is also a
party to a pending court action or
special proceeding with a third party,
arising out of the same transaction or
series of related transactions and
there is a possibility of conflicting
rulings on a common issue of law or
fact." (§ 1281.2(c).) In this latter
circumstance, "the court (1) may
refuse to enforce the arbitration
agreement and may order intervention
or joinder of all parties in a single
action or special proceeding; (2) may
order intervention or joinder as to all
or only certain issues; (3) may order
arbitration among the parties who
have agreed to arbitration and stay
the pending court action or special
proceeding pending the outcome of
the arbitration proceeding; or (4) may
stay arbitration pending the outcome
of the court action or special
proceeding." (Ibid.) Case law has
recognized that section 1281.2(c)
does not contradict the FAA's policy of
favoring arbitration.
In Volt, supra, 489 U.S. 468, the
United States Supreme Court upheld
section 1281.2(c)'s application to an
arbitration provision governed by the
FAA. The contract at issue, a
construction agreement for work to be
performed in California, contained a
clause applying " `the law of the place
where the Project is located.' " (Volt,
supra, 489 U.S. at p. 470.) The high
court rejected a preemption claim,
declaring the FAA "do[es] not prevent
application of [section 1281.2(c)] to
stay arbitration where, as here, the
parties have agreed to arbitrate in
accordance with California law." (Volt,
supra, 489 U.S. at p. 477.) It also
acknowledged "California has taken
the lead in fashioning a legislative
response" governing "the special
practical problems that arise in
multiparty contractual disputes when
some or all of the contracts at issue
include agreements to arbitrate" (id. at
p. 476, fn. 5), and held, "[i]nterpreting
a choice-of-law clause to make
applicable state rules governing the
conduct of arbitration-rules which are
manifestly designed to encourage
resort to the arbitral process-simply
does not offend the rule of liberal
construction . . . , nor does it offend
any other policy embodied in the FAA"
(id. at p. 476, fn. omitted). In so
holding, the court explained, "[w]here,
as here, the parties have agreed to
abide by state rules of arbitration,
enforcing those rules according to the
terms of the agreement is fully
consistent with the goals of the FAA,
even if the result is that arbitration is
stayed where the [FAA] would
otherwise permit it to go forward." (Id.
at p. 479.)
California cases also support this
conclusion. In Mount Diablo Medical
Center v. Health Net of California, Inc.
(2002) 101 Cal.App.4th 711, 726-727
(Mount Diablo), another division of
this court affirmed the use of section
1281.2(c) to deny a motion seeking to
compel arbitration under an
agreement governed by the FAA.
There, the choice-of-law clause
provided that " `the validity,
construction, interpretation and
enforcement of this [a]greement' shall
be governed by California law."
(Mount Diablo, supra, 101 Cal.App.4th
at p. 722.) The court determined that
"[t]he choice-of-law provision in the
present case may be `generic' in the
sense that it does not mention
arbitration or any other specific issue
that might become a subject of
controversy, but it is nonetheless
broad, unqualified and
all-encompassing." (Ibid.) In affirming,
the court declared that "[s]section
1281.2(c) is not a provision designed
to limit the rights of parties who
choose to arbitrate or otherwise to
discourage the use of arbitration," but
"is part of California's statutory
scheme designed to enforce the
parties' arbitration agreements, as the
FAA requires." (Mount Diablo, supra,
101 Cal.App.4th at p. 726.)
Recently, the California Supreme
Court approved this interpretation of
section 1281.2(c) in Cronus
Investments, Inc. v. Concierge
Services (2005) 35 Cal.4th 376, 380,
387 (Cronus). There, the
choice-of-law provision provided: "
`This agreement shall be construed
and enforced in accordance with and
governed by the laws of the State of
California, without giving effect to the
conflict of laws provisions thereof.' "
(Ibid.) Also, the parties seemed to
"agree that the broad choice-of-law
provision generally incorporates
California law, including the California
Arbitration Act . . . [citation], of which
section 1281.2(c) is a part." (Ibid.)
The court held that section 1281.2(c)
is not a special rule limiting the
authority of arbitrators, but rather "an
evenhanded law that allows the trial
court to stay arbitration proceedings
while the concurrent lawsuit proceeds
or stay the lawsuit while arbitration
proceeds to avoid conflicting rulings
on common issues of fact and law
amongst interrelated parties." (Id. at p.
393, italics omitted.) Quoting Mount
Diablo, our Supreme Court explained
that section 1281.2(c) "addresses the
peculiar situation that arises when a
controversy also affects claims by or
against other parties not bound by the
arbitration agreement" and grants the
"court discretion not to enforce the
arbitration agreement under such
circumstances-in order to avoid
potential inconsistency in outcome as
well as duplication of effort . . . ." (Ibid.)
Keenan argues that Cronus and
Mount Diablo do not apply because
the contracts in those cases
specifically provided that the
agreements would be enforced under
California law. Here, the Claims
Agreement provides that it "shall be
governed by and interpreted in
accordance with the laws of the State
of California." Relying on
Mastrobuono v. Shearson Lehman
Hutton, Inc. (1995) 514 U.S. 52, 62
(Mastrobuono), Keenan argues that
generic choice-of-law provisions do
not incorporate state laws regarding
arbitration. The agreement in
Mastrobuono provided only that it "
`shall be governed by the laws of the
State of New York.' '' (Mastrobuono,
supra, 514 U.S. at p. 53.) "The
circumstances in Mastrobuono were
very different from those involved in
the present case. The issue there was
whether to apply New York decisional
law, which permitted punitive damages
to be awarded by courts but not by
arbitrators (the Garrity[*fn5 ]rule)."
(Mount Diablo, supra, 101 Cal.App.4th
at p. 719.) "The petitioners argued
that the FAA preempted the Garrity
rule, while the respondents relied on
Volt, arguing that the choice-of-law
provision incorporated state
arbitration rules, including the Garrity
rule. The high court responded: `At
most, the choice-of-law clause
introduces an ambiguity into an
arbitration agreement that would
otherwise allow punitive damage
awards. As we pointed out in Volt,
when a court interprets such
provisions in an agreement covered
by the FAA, "due regard must be
given to the federal policy favoring
arbitration, and ambiguities as to the
scope of the arbitration clause itself
resolved in favor of arbitration."
[Citations.]' (Mastrobuono, supra, 514
U.S at p. 62.) `We think the best way
to harmonize the choice-of- law
provision with the arbitration provision
is to read "the laws of the State of New
York" to encompass substantive
principles that New York courts would
apply, but not to include special rules
limiting the authority of arbitrators. . . .'
(Id. at pp. 63-64, italics added.)"
(Cronus, supra, 35 Cal.4th at pp.
392-393.)
However, section 1281.2(c), unlike the
New York rule involved in
Mastrobuono, does not involve a
special rule limiting the authority of
arbitrators. (Cronus, supra, 35 Cal.4th
at p. 393; Mount Diablo, supra, 101
Cal.App.4th at p. 726.) " `Rather, it is
part of California's statutory scheme
designed to enforce the parties'
arbitration agreements, as the FAA
requires. Section 1281.2(c) addresses
the peculiar situation that arises when
a controversy also affects claims by or
against other parties not bound by the
arbitration agreement. The California
provision giving the court discretion
not to enforce the arbitration
agreement under such
circumstances-in order to avoid
potential inconsistency in outcome as
well as duplication of effort-does not
contravene the letter or the spirit of
the FAA. That was the explicit holding
in Volt and nothing in Mastrobuono
casts doubt on that conclusion.'
(Mount Diablo, supra, 101 Cal.App.4th
at p. 726.)" (Cronus, supra, 35 Cal.4th
at p. 393.) Although the language in
the Claims Agreement differs from the
contracts in Cronus and Mount Diablo,
we find the underlying rationale of
applying section 1281.2(c) is,
nonetheless, applicable here. In other
words, common issues of fact and law
will be resolved consistently, and only
once. (Mount Diablo, supra, 101
Cal.App.4th at p. 727.)
We are similarly unpersuaded by
Keenan's contention that section
1281.2(c) has not been triggered
because SFUSD's claims against
Keenan and its claims against the
other defendants (Marsh and Driver)
do not arise out of the same
transaction and involve no overlap of
claims. The underlying action
challenges industry-wide kickback
practices alleged to be followed by all
of the defendants,*fn6 including
Keenan, vis-...-vis their dealings with
the respective public entities plaintiffs.
The trial court did not abuse its
discretion in applying section
1281.2(c) under these circumstances,
as it is possible that arbitration could
lead to conflicting rulings in this
multiparty action. (Code Civ. Proc., §
1281.2(c); see also Henry v. Alcove
Investment, Inc. (1991) 233
Cal.App.3d 94, 101-102; Green v. Mt.
Diablo Hospital Dist. (1989) 207
Cal.App.3d 63, 75.)
Finally, contrary to Keenan's
contention, Code of Civil Procedure
section 1281.4 does not mandate a
stay of the instant action. Where a
matter has been ordered to
arbitration, "the court in which such
action or proceeding is pending shall,
upon motion of a party . . . , stay the
action or proceeding until an
arbitration is had in accordance with
the order to arbitrate . . . ." (Code Civ.
Proc., § 1281.4.) "[O]ne of the
purposes of this statute `is to promote
the expeditious and efficient
settlement of disputes and eliminate
multiplicity of actions.' [Citations.]"
(McMillin Development, Inc. v. Home
Buyers Warranty (1998) 68
Cal.App.4th 896, 910-911; see also
Marcus v. Superior Court (1977) 75
Cal.App.3d 204, 211-212.) Here,
however, the determination of
SFUSD's nonarbitrable claims against
Keenan may make the arbitration
unnecessary. In other words, staying
the instant action pending the
resolution of the arbitrable claims
could result in the type of multiplicity
of actions Code of Civil Procedure
section 1281.4 is intended to prevent.
Accordingly, the trial court did not
abuse its discretion in applying
section 1281.2(c).
D. The Trial Court Did Not Err in
Denying the Motion for
Reconsideration
Finally, Keenan argues that the trial
court abused its discretion in denying
its motion for reconsideration.
Code of Civil Procedure section 1008,
subdivision (a), provides that a party
may seek reconsideration of an order
"based upon new or different facts,
circumstances, or law . . . ." Keenan
argues that SFUSD's allegations of
third party beneficiary status in the
second amended complaint
constituted "new facts" for purposes of
Code of Civil Procedure section 1008.
This contention is without merit.
As discussed, the determination of a
party's status as a third party
beneficiary is a matter of contract
interpretation. (Hess, supra, 27
Cal.4th at p. 524.) While the
resolution of this legal question
typically involves a question of fact, it,
nonetheless, remains a legal inquiry
for the court. (See Prouty v. Gores
Technology Group, supra, 121
Cal.App.4th at p. 1233; see also
DuPont, supra, 269 F.3d at p. 197;
Chacksfield v. L. A. County Flood etc.
Dist. (1966) 245 Cal.App.2d 193,
194-195 [no abuse of discretion in
sustaining demurrer without leave to
amend where cross-complaint alleged
"legal conclusion" regarding third
party beneficiary status].) Accordingly,
SFUSD's assertions in the second
amended complaint that it was a third
party beneficiary of the JPA
Agreements did not constitute new
"facts" justifying the granting of
Keenan's motion for reconsideration.
Moreover, the basis of the trial court's
denial of Keenan's prior motion to
compel arbitration "was based in large
part on the very limited language of
the arbitration provisions in the [JPA
Agreements], which, of course,
remain[ed] unchanged." The trial
court acted well within in its discretion
in denying Keenan's request for
reconsideration.
III. DISPOSITION
The orders denying Keenan's motion
to compel arbitration and motion for
reconsideration are affirmed. SFUSD
is entitled to its costs on appeal.
We concur: Ruvolo, P.J., Rivera, J.
Opinion Footnotes *fn1 A JPA is a
legally independent entity created by
a joint exercise of powers agreement
pursuant to Government Code section
6500 et seq.
*fn2 Keenan raises this argument for
the first time in its reply brief.
Normally, contentions raised for the
first time in a reply brief are ignored.
(See, e.g., Shade Foods, Inc. v.
Innovative Products Sales &
Marketing, Inc. (2000) 78 Cal.App.4th
847, 894- 895, fn. 10.) However, this
argument relates to Keenan's
equitable estoppel argument and
presents a legal question on
undisputed facts. (See Barton v. New
United Motor Manufacturing, Inc.
(1996) 43 Cal.App.4th 1200, 1207;
see also Metalclad, supra, 109
Cal.App.4th at p. 1716.) As such, we
consider this related argument on
appeal.
*fn3 Keenan incorrectly points to the
language of the JPA Agreements,
rather than the language of the joint
exercise of powers agreements in
which SFUSD agreed to become a
member of Nor Cal and SAFER.
Additionally, the record before us
contains only the joint exercise of
powers agreement between Nor Cal
and SFUSD.
*fn4 Keenan mistakenly relies on the
choice- of- law provisions in the JPA
Agreements because arbitration
under those agreements was denied.
In any event, the 2003 Nor Cal
Agreement contains a choice of
California law provision.
*fn5 Garrity v. Lyle Stuart, Inc. (1976)
40 N.Y.2d 354, 386.
*fn6 Keenan filed a request for judicial
notice along with its reply brief that
requests that we judicially notice a
fourth amended complaint in which
Keenan is the sole defendant, as well
as an additional class action filed by
the County of Santa Clara and the
People of the State of California
against Driver. Keenan claims that the
fourth amended complaint establishes
that SFUSD's claims arise out of and
are based on the JPA Agreements.
We deferred ruling until the time of
decision and now deny the request for
judicial notice. The fourth amended
complaint is the subject of a second
pending appeal by Keenan (case No.
A115994), which raises many of the
same arguments advanced in the
instant appeal. On March 27, 2007,
we denied Keenan's request to
consolidate the two appeals. Although
the analysis in this opinion may be
applicable to the pending appeal
regarding the fourth amended
complaint, we address only the
iterations of the complaints that are
before us.
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