Hearing Date:March 13, 2019
Case Name:Benjamin v. JP Morgan Chase Bank, N.A., et al.
Motion:Motion to Compel Arbitration
Moving Party:Defendants JP Morgan Chase Bank, N.A. and John Luis Torres
Opposing Party:Plaintiffs Stuart Banjamin, Stuart Benjamin Productions, Inc., and Stax Musical, LLC
Tentative Ruling: The Motion to Compel Arbitration is granted in part.
This is an action in which Plaintiffs allege that Defendants converted $550,000 after Plaintiffs deposited such sums as collateral for a line of credit meant to finance a musical. On December 10, 2018, Plaintiffs filed the operative Complaint for (1) negligent supervision, (2) fraud, (3) conversion, and (4) common count: money had and received.
Defendants move to compel arbitration based on an arbitration provision within Plaintiff Stax Musical, LLC’s (“Stax”) funding agreement for the subject musical (“Funding Agreement”). (While Decl., Exhibit A.) Stax and non-parties Forrest Capital Partners, Inc. and Weathervane Productions, Inc. are contracting parties to the Funding Agreement. (Ibid.)
Defendants first argue that an arbitrator ought to decide issues of arbitrability as the Funding Agreement contains a delegation clause.
Parties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement.” (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 239.) “There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Aanderud v. Superior Court (2017) 13 Cal. App. 5th 880, 891-892.)
Here, there is no dispute as to whether the Funding Agreement is revocable. Rather, the parties disagree as to whether the delegation clause is clear and unmistakable as applying to Defendants, who are not signatories to the Funding Agreement.
Defendants argue that the issues of whether they are parties to the Funding Agreement or else whether they can enforce the Funding Agreement via equitable estoppel are also meant for the arbitrator. (See Reply at p. 4.) This is incorrect; for a delegation clause to apply, the Court must first determine that the Plaintiffs actually agreed to arbitrate with non-signatories. (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1127.)
The subject delegation clause states, “Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by binding arbitration . . . .” (White Decl., Exhibit A § 10(b).) In contrast to the delegation clause presented in Kramer, the subject delegation clause does not restrict Plaintiffs to arbitrating the issue of arbitrability with signatories. That is, the delegation clause does not specify any particular parties who must arbitrate the issue of arbitrability with Plaintiffs.
Plaintiffs point to the fact that the Funding Agreement specifically states that “The Parties agree to confidential arbitration . . . .” (White Decl., Exhibit A § 10(b) (emphasis added).) However, this provision pertains to which parties must pursue and maintain arbitration confidentially.
Plaintiffs also point to the Funding Agreement’s provision that “Any dispute, claims or controversies resulting from this agreement covered by this Section shall be limited to the companies executing this agreement.” (White Decl., Exhibit A § 10(d).) However, looking at the contact as a whole (Lemm v. Stillwater Land & Cattle Co. (1933) 217 Cal. 474, 481), it is apparent that the entirety of § 10(d) indicates that the latter provision is meant only to preclude suit as against any representative of the contracting parties. Indeed, the Funding Agreement goes on to state, “For avoidance of doubt, all legal actions and remedies shall only be between the corporate entities listed in this agreement and not the individuals of those organizations.” (White Decl., Exhibit A § 10(d).)
In sum, the Court concludes that the delegation clause is applicable because it clearly and unmistakably pertains to nonparties such as Defendants who were not representatives of contracting parties.
Plaintiffs Stuart Benjamin and Stuart Benjamin Productions, Inc. also argue that they cannot be compelled to arbitration because they are not signatories to the Funding Agreement; rather, they contend only Stax was a signatory.
“A nonsignatory plaintiff can be compelled to arbitrate a claim even against a nonsignatory defendant, when the claim is itself based on, or inextricably intertwined with, the contract containing the arbitration clause.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1242.) “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Boucher v. Alliance Title Co., Inc.(2005) 127 Cal.App.4th 262, 272.) At bottom, equitable estoppel applies where a plaintiff relies on contracts containing an arbitration provision to make claims against a non-signatory “while at the same time avoiding the arbitration clauses of those agreements.” (Goldman v. KMPG, LLP (2009) 173 Cal.App.4th 209, 233.)
The Court believes that equitable estoppel ought to apply to Plaintiffs’ claim for fraud to the extent it seeks to recover for misrepresentations which presume the existence of the Funding Agreement and for which justifiable reliance would be, at least partially, tied to the same. (Grigson v. Creative Artists Agency LLC (5th Cir. 2000) 210 F.3d 524, 527.) Indeed, Plaintiffs seek to recover for misrepresentations such as Torres’ statement that “The FCP Group deposited their $550,000 through false account statements”. (Compl. ¶ 39(b).) This would be a statement premised on the Funding Agreement’s obligations as to Forrest Capital Partners, Inc. and Weathervane Productions, Inc.
On the other hand, equitable estoppel does not apply to Plaintiffs’ first, third, and fourth causes of action because such claims do not substantively rely on the Funding Agreement. While the Funding Agreement is foundational, the Complaint premises liability for each cause of action on the unauthorized dissipation of Plaintiffs’ $550,000 deposit and Chase’s neglect in supervising Torres. That is, thesecauses of action do not in any way require or presume the existence of the Funding Agreement for recovery.
In conclusion, the Motion to Compel Arbitration is granted in part. Specifically, the Motion is granted as to all claims asserted byPlaintiff Stax. The Motion is also granted as to the second cause of action asserted by Plaintiffs Stuart Benjamin and Stuart Benjamin Productions, Inc. To be clear, the Court compels arbitration for the limited purposes of the arbitrator determining issues as to arbitrability. The Motion is denied as to the first, third, and fourth causes of action asserted by Plaintiffs Stuart Benjamin and Stuart Benjamin Productions, Inc. The action is stayed pending arbitration.