Ehrman v. Post CA2/2 ( 2022 )

Filed 2/25/22 Ehrman v. Post CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
JOHN R. EHRMAN, B306922
Plaintiff and (Los Angeles County
Respondent, Super. Ct. No.
19STCV44336)
v.
JASON POST, Individually and
as Trustee, etc., et al.,
Defendants and
Appellants.
APPEAL from an order of the Superior Court of Los
Angeles County, Randolph M. Hammock, Judge. Reversed and
remanded with directions.
Manatt, Phelps & Phillips, Emil Petrossian and Benjamin
B. Shatz for Defendants and Appellants.
Mayer Brown, Glenn K. Vanzura and Elisabeth M.
Anderson for Plaintiff and Respondent.
Appellant Jason Post petitioned to compel arbitration of a
lawsuit filed by respondent John Ehrman. The dispute concerns
a web of businesses they used to invest in real property. The trial
court denied the petition, finding that Post and entities related to
him failed to prove the existence of an agreement to arbitrate.
Ehrman’s complaint—including his claim for breach of an
oral partnership agreement—is founded on written agreements
underlying the parties’ business. Appellants submitted excerpts
from 61 of these written agreements requiring arbitration of all
disputes, claims, or controversies arising from or relating to
them.
Ehrman did not sign the written agreements but he claims
to be a party to them or beneficiary of them. Because his lawsuit
is based on agreements requiring arbitration of all disputes,
Ehrman is equitably estopped from claiming he is exempt from
arbitration. If the agreements have inconsistent arbitration
provisions, the trial court should resolve the conflicts to achieve
substantial justice. (Code Civ. Proc., § 1281.3.)1 We reverse and
remand the case with directions to order the parties to arbitrate
their dispute. (§ 1281.2.)
FACTS AND PROCEDURAL HISTORY
Allegations in Ehrman’s Complaint
Ehrman and Post began working together in 2007,
purchasing, managing, and selling property. Under the terms of
an alleged oral partnership, they secured capital for investment
and shared profits, losses, and liabilities, forming dozens of
limited liability companies (LLCs) and limited partnerships to
1
Undesignated statutory references are to the Code of Civil
Procedure.
2
hold properties they acquired. Ehrman was a member, manager,
or managing member of many of the LLCs. His position is
memorialized in operating agreements and other documents.
Ehrman alleges that Post engaged in misconduct, including
misappropriation of investor funds and defrauding investors by
billing for construction work that was never performed. Ehrman
admonished Post to stop his wrongful behavior. Instead, Post
pushed Ehrman out of their business, excluded him from
participation in management, sold assets without Ehrman’s
knowledge or approval, refused to provide Ehrman with business
records, and failed to pay distributions.
Ehrman filed suit against Post, individually and as trustee
of the Posovsky/Rakow Living Trust (Trust); Post Investment
Group, LLC (PIGL); and Post Real Estate Group, Inc. (PREGI).
Ehrman’s amended complaint asserts 24 causes of action,
including breach of an oral partnership agreement; breach of
contract; breach of fiduciary duty; breach of the implied covenant
of good faith and fair dealing; misrepresentation; interference
with prospective economic advantage; declaratory relief;
constructive trust; and an accounting.
Petition To Compel Arbitration
Appellants petitioned to compel arbitration and stay the
litigation. Post declared that Trust is sole owner of PIGL and
PREGI. Each property the parties acquired is owned by or
affiliated with four entities: a property holding LLC, a partners
LLC, a managing member LLC, and a promoted interest
participation (PIP) entity. The property holding LLC operating
agreements and partners LLC agreements are governed by
written agreements (Written Agreements) with arbitration
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clauses. Appellants submitted four exemplars of Written
Agreements for their real estate business.
Post declared that Ehrman worked for PREGI from 2007 to
2018, eventually becoming chief investment officer. Ehrman is
party to partners LLC agreements for transactions in which he
invested; managing member LLCs; and PIP agreements. After
Post refused Ehrman’s proposal to become a partner in PIGL,
Ehrman left to form his own company, then claimed he had an
oral partnership with Post.
Post argued that the court must compel arbitration when
the parties have a valid agreement to arbitrate. He asserted that
Ehrman is bound by arbitration clauses in the Written
Agreements under the “single transaction” doctrine, or he is
bound because he is a party to the agreements or a beneficiary of
them. Appellants did not attach to their petition a contract
signed by all parties containing an arbitration clause.
Ehrman’s Opposition to Arbitration
Ehrman denied that his oral partnership agreement with
Post has an arbitration provision. He argued that appellants did
not prove the existence of an agreement to arbitrate. Of the four
agreements offered in support of their petition, two have
arbitration clauses and Ehrman did not sign them; Post (in his
individual capacity), Trust, and PREGI did not sign the
agreements submitted to the court. No “single transaction”
doctrine binds a party to unsigned contracts.
Ehrman argued that the Written Agreements have
conflicting arbitration clauses. Some require that disputes be
submitted to JAMS and have a cost-shifting provision. Others
say that disputes are governed by American Arbitration
Association (AAA) rules, with costs borne equally.
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Appellants’ Reply
Appellants observed that Ehrman alleges he is a party to or
intended beneficiary of the Written Agreements, which subjects
him to the arbitration clauses in the agreements; he is foreclosed
from “cherry-picking certain provisions of the Interrelated
Agreements he finds advantageous while simultaneously
disregarding provisions he dislikes.” Ehrman entered multiple
contracts that “constitute a single transaction and must be
construed as a single agreement.” He cannot rely on an alleged
oral partnership agreement to invalidate his written agreement
to arbitrate.
Post declared that Ehrman’s complaint involves 38 real
estate investments. Among these, 26 property holding LLC
agreements contain mandatory arbitration agreements; 24 of the
26 agreements require arbitration before JAMS and two do not
require arbitration in any particular venue. Appellants
submitted 57 additional Written Agreements containing
arbitration provisions.
Ehrman’s Surreply
The court allowed Ehrman to respond to appellants’ newly
submitted evidence. He argued that he signed one of the 61
agreements, which does not contain an arbitration clause. Three
of the four defendants (Post, Trust, and PREGI) did not sign the
61 agreements. PIGL signed two of the 61 agreements, but
neither contains an arbitration clause.
Court Hearing and Ruling
At the hearing, appellants argued that Ehrman must
arbitrate, even if he did not sign the “hundreds of agreements at
issue in this case,” because he is suing to enforce them or claims
third party beneficiary status. He is estopped from denying that
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he is bound by them. Ehrman agreed that “we are suing for
breach of all of the agreements.” However, he maintained that
most of his claims do not involve breach of contract.
The court ruled that California laws governing arbitration
apply, even if Delaware law plays a role in determining the
merits of the lawsuit. The court found that agreements
submitted by appellants were either not signed by Ehrman or
had no arbitration clause. The trial court did not accept
appellants’ equitable estoppel theory and concluded that
appellants “did not meet their burden to prove by a
preponderance of the evidence that the parties entered into any
agreement to arbitrate any of Plaintiff’s claims.”
DISCUSSION
1. Appeal and Review
State law strongly favors arbitration. (St. Agnes Medical
Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195.)
On petition of a party, a court must order arbitration “if it
determines that an agreement to arbitrate the controversy
exists.” (§ 1281.2.) The denial of a petition to arbitrate is
appealable. (§ 1294, subd. (a).)
The parties agree that review is de novo because it requires
legal analysis, not resolution of a factual dispute. (NORCAL
Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71.)
Whether an arbitration agreement is binding on a nonsignatory
is a question of law subject to de novo review. (Pillar Project AG
v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 675.)
Doubts about arbitrability are “ ‘resolved in favor of coverage.’ ”
(AT&T Techs. Inc. v. Communs. Workers of America (1986) 475
U.S. 643, 650; Comerica Bank v. Howsam (2012) 208 Cal.App.4th
790, 832.)
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2. Pleading Allegations Are Relevant
Courts examine pleading allegations to determine if an
arbitration clause applies to a dispute. (Dryer v. Los Angeles
Rams (1985) 40 Cal.3d 406, 418; Rice v. Downs (2016) 248
Cal.App.4th 175, 185 [court examines the agreement and the
complaint filed by the plaintiff who refuses to arbitrate].)
A provision requiring arbitration of any controversy or
dispute arising from or relating to an agreement covers tort
claims if the underlying agreement embraces the dispute.
(Lewsadder v. Mitchum, Jones & Templeton, Inc. (1973) 36
Cal.App.3d 255, 259; Merrick v. Writers Guild of America, West,
Inc. (1982) 130 Cal.App.3d 212, 219. Cf. Ahern v. Asset
Management Consultants, Inc. (Feb. 2, 2022, B309935) __
Cal.App.5th ___ [2022 Cal.App.LEXIS 80, *7] [tort claims are not
“rooted in” an arbitration clause that narrowly covers
“ ‘interpretation or enforcement of the provisions of this
Agreement’ ”].) “The focus is on the nature of the claims asserted
by the plaintiff . . . . That the claims are cast in tort rather than
contract does not avoid the arbitration clause.” (Boucher v.
Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 272 (Boucher);
Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186,
1189–1190 [arbitration clause covering “any dispute”
encompassed claims rooted in the contractual relationship
including wrongful termination in violation of public policy;
breach of the covenant of good faith and fair dealing; infliction of
emotional distress; and defamation]; Garcia v. Pexco, LLC (2017)
11 Cal.App.5th 782, 787 [plaintiff cannot avoid obligation to
arbitrate claims arising out of his business relationship with
defendant “by framing his claims as merely statutory”].)
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3. Applicable Law
In footnote 5 of their opening brief, appellants argue that
Delaware law governs the issue of arbitrability because the
Written Agreements have Delaware choice-of-law provisions.
Legal issues presented in footnotes are generally deemed
inadequate. (Holden v. City of San Diego (2019) 43 Cal.App.5th
404, 419-420; Sabi v. Sterling (2010) 183 Cal.App.4th 916, 947.)
Nonetheless, appellants raised the issue below and the trial court
ruled on it.
California has a “strong policy . . . favoring the enforcement
of freely negotiated choice-of-law clauses.” (Nedlloyd Lines B.V.
v. Superior Court (1992) 3 Cal.4th 459, 462 (Nedlloyd).)
Appellants must show that Delaware “has a substantial
relationship to the parties or their transaction” or identify
another “reasonable basis for the parties’ choice of law.” (Id. at
pp. 466–467 [Hong Kong law applied because corporate parties
were domiciled there].) “If neither of these tests is met, that is
the end of the inquiry, and the court need not enforce the parties’
choice of law. If, however, either test is met, the court must next
determine whether the chosen state’s law is contrary to a
fundamental policy of California.” (Id. at p. 466, fns. omitted.)
Appellants PIGL and PREGI are companies organized and
existing under Delaware law, as Ehrman pleads in his complaint.
A party’s incorporation in the jurisdiction specified in a choice of
law provision is a “ ‘substantial relationship’ ” and is “ ‘a
reasonable basis’ ” for a contractual provision requiring
application of that jurisdiction’s law. (Nedlloyd, supra, 3 Cal.4th
at p. 467.)
Ehrman is suing to enforce rights under dozens of LLCs
existing under Delaware law. He signed the Post Big Oak MM,
8
LLC agreement, which contains a Delaware choice-of-law
provision. He specifically alleges violations of agreements
involving Post Annex and 16 other LLCs, in which he is a
manager or managing member. Post Annex and other LLCs are
Delaware entities. He claims Delaware law gives him the right
to inspect each LLCs books and records. Given policies favoring
choice-of-law provisions, we analyze Ehrman’s lawsuit under
California and Delaware law. As we shall see, both are
congruent in this case.
4. Equitable Estoppel
Appellants contend that Ehrman is estopped from avoiding
arbitration provisions in written contracts he is suing to enforce.
Generally, “one must be a party to an arbitration agreement to be
bound by it.” (Westra v. Marcus & Millichap Real Estate
Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763.)
Ehrman signed one of the 61 documents appellants submitted in
support of their petition: It does not contain an arbitration
clause. Under the general rule, Ehrman would not be bound by
contracts he did not sign.
Equitable estoppel is an exception to the general rule.
Under that doctrine, “[b]y 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,
supra, 127 Cal.App.4th at p. 272.) Under Delaware law, a
nonsignatory may be compelled to arbitrate under equitable
estoppel and third-party beneficiary theories. (NAMA Holdings,
LLC v. Related World Mkt. Ctr., LLC (Del.Ch. 2007) 922 A.2d
417, 430–431.)
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The purpose of the estoppel doctrine is “to prevent a party
from using the terms or obligations of an agreement as the basis
for his claims against a nonsignatory, while at the same time
refusing to arbitrate with the nonsignatory under another clause
of that same agreement.” (Goldman v. KPMG, LLP (2009) 173
Cal.App.4th 209, 221.) Estoppel applies if a plaintiff refuses to
arbitrate but asserts claims that are “ ‘dependent upon, or
inextricably intertwined with’ ” underlying contractual
obligations of an agreement containing the arbitration clause.
(JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th
1222, 1239 (JSM).)
In JSM, supra, 193 Cal.App.4th 1222, the court applied
equitable estoppel to a plaintiff who did not sign the arbitration
agreement. “When a plaintiff brings a claim which relies on
contract terms against a defendant, the plaintiff may be equitably
estopped from repudiating the arbitration clause contained in
that agreement. [Citations.] There is no reason why this
doctrine should not be equally applicable to a nonsignatory
plaintiff. When that plaintiff is suing on a contract—on the basis
that, even though the plaintiff was not a party to the contract,
the plaintiff is nonetheless entitled to recover for its breach, the
plaintiff should be equitably estopped from repudiating the
contract’s arbitration clause. . . . [¶] Additionally, a
nonsignatory can be compelled to arbitrate when it is suing as a
third party beneficiary of the contract containing the arbitration
clause [citation]; this too weighs in favor of enforcing the
arbitration clause in this case.” (JSM, at pp. 1239–1240; accord,
Am. Legacy Found. v. Lorillard Tobacco Co. (Del.Ch. 2003) 831
10
A.2d 335, 349; Westendorf v. Gateway 2000, Inc. (Del.Ch. Mar. 16,
2000) [2000 Del.Ch. LEXIS 54, 2000 WL 307369].)2
It is disingenuous for Ehrman to claim his lawsuit is solely
based on an oral partnership agreement. Nearly every page of
his 48-page complaint cites written agreements through which
the parties purchased, managed, and sold property. At the trial
court hearing, Ehrman conceded he is “suing for breach of all of
the [written] agreements.” They are the foundation of his claims.
Ehrman’s concession shows he considers himself a party to
the Written Agreements or a beneficiary of them. The pleading
claims Ehrman is a party to Written Agreements for affiliated
LLCs, describing them as “ ‘tentacles’ spreading off of the
‘mothership’ ” of the oral partnership. The pleading diagrams the
connections between affiliated LLCs created by the Written
Agreements and Ehrman’s role in them, referring to them as “the
asset structure.”
Ehrman pleads that he is entitled to a judicial declaration
that he and Post are partners “and that the assets of the
Partnership include . . . affiliated entities [and] assets owned by
the affiliated entities.” The affiliated entities are companies
formed by the Written Agreements. In his brief, Ehrman states
that the oral partnership used these entities to acquire and
manage properties. He benefited financially from these entities
until Post allegedly forced him out of the business and refused to
pay distributions.
Though Ehrman emphasizes his failure to sign the Written
Agreements, his complaint alleges he is a party to or “intended
2 Unpublished cases are citable under Delaware rules.
(Del. Super. Ct. Civ. Rules, rule 107(d)(4)(b).)
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beneficiar[y] of, the written operating agreements of the Property
Holding Companies.” Appellants did not dispute that Ehrman is
a party to or intended beneficiary of agreements in which he was
a managing member or had an investment interest.
Ehrman’s first cause of action for breach of oral partnership
agreement incorporates by reference 53 prior allegations
detailing his involvement with the LLCs and the rights this gives
him. In a demand letter attached to his pleading, Ehrman
sought books and records of “each and every Post Company,”
encompassing “any corporate entity, that owns or manages
property” and listing 74 different entities. The demand relies on
the Written Agreements, showing he has availed himself of rights
they confer even if he did not sign them.
The assets in the alleged partnership between Post and
Ehrman are held by various entities whose governing documents
require parties and members to arbitrate disputes. The
complaint asserts that Ehrman is a member of the entities. He
alleges that appellants breached their fiduciary duties by
wrongfully withholding distributions from numerous LLCs and
PIPs, despite his membership in them.
Each cause of action is “ ‘ “intimately founded in and
intertwined” ’ ” with the underlying Written Agreements. (JSM,
supra, 193 Cal.App.4th at p. 1237.) Even if Post (individually),
Trust, and PREGI did not sign the agreements, “[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.” (Id. at p. 1241.)
By suing appellants to secure rights and benefits under the
Written Agreements—the lynchpin in his alleged oral
12
partnership with Post—Ehrman is equitably estopped from
disavowing the arbitration clauses in those agreements. He
claims to be a member, party, or beneficiary of them, even if he
did not sign them. “The fundamental point is that a party may
not make use of a contract containing an arbitration clause and
then attempt to avoid the duty to arbitrate.” (Boucher, supra,
127 Cal.App.4th at p. 272.) In sum, though Ehrman did not sign
the agreements, he “may nonetheless be compelled to arbitrate
when he seeks enforcement of other provisions of the same
contract that benefit him.” (Metalclad v. Ventana Environmental
Org. Corp. Partnership (2003) 109 Cal.App.4th 1705, 1713.)
5. Conflicts in the Arbitration Clauses
The Written Agreements require that “any” dispute, claim
or controversy “arising out of or relating to this Agreement” be
submitted to final and binding arbitration before a single
arbitrator. Ehrman contends that the clauses are unenforceable
because they conflict. Some require that disputes be submitted to
JAMS and allow the arbitrator to allocate all or part of the cost of
arbitration (arbitrator and attorney fees) to the prevailing party.
Some refer to the AAA and require the cost of the arbitrator’s fee
to be equally shared but allow the arbitrator to award attorney
fees to the prevailing party.
An agreement to arbitrate remains valid even where there
are “multiple alternative methods for appointing an arbitrator.”
(HM DG, Inc. v. Amini (2013) 219 Cal.App.4th 1100, 1108.) If the
parties cannot agree on a method, section 1281.6 “provides a
solution to ensure a party’s contractual right to arbitrate is
enforced,” by allowing the court to appoint the arbitrator.
(HM DG, Inc., at p. 1108.) In HM DG, the court rejected the
claim of the party opposing arbitration, who argued that there
13
was no “ ‘meeting of the minds’ ” or mutual consent to arbitrate
because there were options for selecting an arbitrator and
location. (Id. at pp. 1108–1109.) The lack of a specified forum or
set of rules does not invalidate the agreement to arbitrate; the
parties may choose to agree on a forum, rules, and arbitrator, or
have the court decide for them among alternatives so long as the
arbitration clause clearly evidences the parties’ intent to submit
their disputes to binding arbitration. (Id. at pp. 1110–1111.)
If arbitration arises from alleged violations of multiple
agreements containing arbitration clauses, the court may order
the proceedings consolidated if the disputes “arise from the same
transactions or series of related transactions” and there are
common issues of fact or law creating the possibility of conflicting
arbitration rulings. (§ 1281.3.) “In the event that the arbitration
agreements in consolidated proceedings contain inconsistent
provisions, the court shall resolve such conflicts and determine
the rights and duties of the various parties to achieve substantial
justice under all the circumstances.” (Ibid.) This statutory
provision furthers policies favoring efficient settling of private
disputes, judicial economy, and avoidance of conflicting results.
(Garden Grove Community Church v. Pittsburgh-Des Moines
Steel Co. (1983) 140 Cal.App.3d 251, 262.)
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DISPOSITION
The order denying appellants’ petition for arbitration is
reversed. The case is remanded with directions to stay
respondent’s lawsuit and order the parties to arbitrate their
dispute. Respondent to bear all costs on appeal.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
CHAVEZ, J.
HOFFSTADT, J.
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