BDBG Promotions, Inc. v. The Eleanor Group

Filed 11/28/05 BDBG Promotions, Inc. v. The Eleanor Group CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

BDBG PROMOTIONS, INC., et al., Plaintiffs and Respondents, v. THE ELEANOR GROUP et al., Defendants and Appellants.

B177752 (Los Angeles County Super. Ct. No. BC 316920)

APPEAL from a judgment of the Superior Court of Los Angeles County. Ralph Dau, Judge. Affirmed.

Kramer & Kaslow, Philip A. Kramer, and James D. Henderson, Jr., for Defendants and Appellants.

Lon B. Isaacson Associates, Lon B. Isaacson, and Larry Johnson for Plaintiffs and Respondents.

* * * * * *

Appellants Crystal Mattson, Rebecca Harrell and Jennifer Cusentino appeal from an order denying their petition to compel arbitration with respondents BDBG Promotions, Inc., and Elizabeth Martin. We affirm.

FACTS

On June 11, 2004, respondents filed an action, which named appellants^[1] and Lisa Donovan, Jen Dede and Deanne Wright as defendants. Donovan, Dede and Wright are not parties to this appeal. The complaint alleges that BDBG Promotions, Inc., sells promotional packages for salons and day spas and that respondent Martin is the sole owner of BDBG.

The complaint alleges that appellants Harrell and Mattson started working for BDBG in February 2004. Harrell and Mattson signed employment agreements under which they agreed to keep BDBG’s trade secrets confidential, and undertook not to compete with BDBG. The only other signatory to the employment agreements is “BDBG PROMOTIONS, INC.,” by Elizabeth A. Martin, President. The employment agreements contain a clause that requires the parties to the agreement to submit “any controversy or claim relating to this agreement” to arbitration. (Capitalization omitted.)

According to the complaint, BDBG hired Cusentino on the recommendation of Harrell, and Cusentino went to work for BDBG in February 2004. The complaint alleges that appellant Cusentino is the owner of The Eleanor Group, and that Cusentino founded The Eleanor Group sometime after February 2004 in order to use information stolen from BDBG to compete with BDBG. In May 2004, BDBG learned that Cusentino, acting through The Eleanor Group, had stolen client lists, confidential information and clientele from BDBG. The complaint alleges 10 causes of action, including misappropriation of trade secrets, conversion, breach of contract and fraud.

On June 14, 2004, respondents filed an application for a temporary restraining order, and a preliminary and permanent injunction. The trial court issued a temporary restraining order on June 17, 2004. On August 2, 2004, the trial court issued a preliminary injunction prohibiting appellants from soliciting salons and day spas whose identity they learned while employed or associated with BDBG. The injunction contained other orders that are not material to this appeal.

On July 21, 2004, Harrell and Mattson filed a petition to compel arbitration. Donovan (not a party to this appeal) and Cusentino separately joined in the petition on the same day it was filed. Cusentino stated in her joinder in the petition that she did not sign an employment agreement, but that she was “willing” to have the dispute submitted to arbitration. Harrell, Mattson and Donovan relied on the clause in their employment agreements that required the parties to the agreement to submit any controversy or claim relating to the employment agreement to arbitration. Respondents opposed the petition on the grounds that Martin was not a party to the employment agreement and that, by noticing depositions of Martin and the person most knowledgeable at BDBG about business contacts, appellants waived their right to arbitrate.

The trial court denied the petition. The trial court noted that defendant Wright (not a party to this appeal) did not submit a written agreement between herself and BDBG and that defendant Dede (also not a party to this appeal) did not join in the petition to compel arbitration and did not submit a written agreement between herself and BDBG. The court noted that respondent Martin did not sign the employment agreements that contain the arbitration clause, even though she is the sole owner of BDBG. The court concluded that there “are parties who are not parties to an agreement to arbitrate, and there is a possibility of conflicting rulings on questions of law or fact should an arbitration and trial go forward. Under the circumstances, the court believes the better course is to stay the arbitration between defendants Rebecca Harrell, Crystal Mattson, and Lisa Donovan and BDBG pending the outcome of the court action. (Code Civ. Proc., § 1281.2(c)(4).)”^[2]

DISCUSSION

We agree with the trial court’s ruling. There are parties to the court proceedings who are not parties to an arbitration required by the employment agreement.

There is nothing to indicate that defendants Wright and Dede were signatories to the employment agreement and it is clear that Martin did not sign the agreement in her individual capacity. And, while Cusentino is “willing” to participate in the arbitration, the court cannot compel BDBG to arbitrate its dispute with a person who did not sign the arbitration agreement; BDBG makes it clear in its appellate brief that it is not “willing” to arbitrate its dispute with Cusentino. Thus, four parties will not participate in the arbitration, but will be parties to the court litigation, and one of them is one of the two plaintiffs, i.e., Martin. This means that the parties to the arbitration (Harrell, Mattson and BDBG) are also parties to a pending court action or special proceeding with third parties (Wright, Dede, Martin, Cusentino) arising out of the same transaction or series of related transactions, and that there is therefore a possibility of conflicting rulings on common issues of law or fact. (See Code Civ. Proc., § 1281.2, subd. (c), fn. 2, ante.) Under these circumstances, subdivision (c) of section 1281.2 empowers the court to do as it did here, namely stay the arbitration pending the outcome of the court proceedings.

Appellant’s arguments to the contrary are unavailing. While it is true that a court must compel arbitration when the conditions for arbitration are met, in this case the conditions were not met. The dispute between appellants and their codefendants, on the one hand, and respondents, on the other, is one and the same, i.e., the use of information obtained while at least some of the appellants were employed by BDBG. Significantly, appellants state in their opening brief that all causes of action in respondent’s complaint have their “roots” in the employment agreements and that “[e]ach and every cause of action found in Respondents’ complaint would not exist but for the Independent Contractor Agreements [employment agreements].” Thus, the controversy litigated in the arbitration and the court proceedings is the same. Conflicting results between the court proceedings and the arbitration are therefore a real possibility. This circumstance empowered the court to stay the arbitration pending the outcome of the court proceedings.

Appellants contend that Martin should be compelled to arbitrate because she is a third party beneficiary of the employment agreement or, alternatively or additionally, she is BDBG’s agent and therefore is bound by the employment agreement. This argument fails at the outset because Martin is not the only nonparty to the employment agreement, as we have noted; there are three others who are not parties to the employment agreement, but who are parties to the court proceedings. Thus, even if Martin personally is bound by the employment agreement, and we do not find that she is bound, there are three others who are not, which opens the door to conflicting results.

Appellants cite Harris v. Superior Court (1986) 188 Cal.App.3d 475 in support of their contention that, as in Harris, Martin is bound by the arbitration clause in the employment agreements, even though she is not a signatory of the agreements. Harris is distinguishable. In that case, a physician who had not signed the agreement containing the arbitration clause was held to be bound by the clause. The physician was employed by a medical group that was party to the agreement containing the arbitration provision. Since the medical group could render professional services, i.e., medical treatment, only through its employees, the court concluded that the physician was required to submit to arbitration. (Id. at pp. 478-479.) This result makes sense, since otherwise the arbitration provision in Harris would have been a nullity. In the case at bar, BDBG, a corporation, was not limited to acting only through and by Martin personally. As a corporation, BDBG could engage in business activities, such as entering into employment agreements, through persons other than Martin. This was not true of the medical corporation in Harris, which could render professional services only through its physician employees.

It has been held that when, as here, the officer of a corporation is not a party to an arbitration agreement, an arbitration award cannot be entered against the corporate officer. (Southern Cal. Pipe Trades Dist. Council No. 16 v. Merritt (1981) 126 Cal.App.3d 530, 535.) Martin is clearly not a party to the employment agreements, and is therefore not bound by the arbitration provision.

DISPOSITION

The order denying the petition to compel arbitration is affirmed. Respondents are to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

FLIER, J.

We concur:

COOPER, P.J.

RUBIN, J.

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^[1] Mattson, Harrell and Cusentino do business as The Eleanor Group.

^[2] Subdivision (c) of section 1281.2 provides that 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 “[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.”