R. Young Enterprises v. La Rue Gen. Contractors CA2/3 ( 2013 )

Filed 5/29/13 R. Young Enterprises v. La Rue Gen. Contractors CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
R. YOUNG ENTERPRISES, INC., B236671
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC413831)
v.
LA RUE GENERAL CONTRACTORS,
INC.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County,
Mary H. Strobel, Judge. Affirmed.
David M. Shaby II & Associates, John J. Jackman for Plaintiff and Appellant.
Corey & Corey, Edward E. Corey and Stephan P. Hyun for Defendant and
Respondent.
_______________________________________
A party who had stipulated to arbitrate a dispute subsequently chose not to attend
the arbitration. When the arbitrator’s award went against the non-attending party, that
party sought to vacate the award. Its motion to vacate was denied, and the trial court
subsequently entered judgment confirming the award. The dissatisfied party appeals,
contending the award was outside the scope of the arbitrator’s authority and obtained by
fraud. We disagree and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. Initial Complaint
On May 21, 2008, Ashley Aarons hired La Rue General Contractors, Inc.
(La Rue)1 to remodel her home. The contract contained an arbitration clause, providing
that “ ‘[a]ny controversy or claim arising out of or related to this contract, or the breach
thereof, shall be settled by arbitration . . . . ’ ”
Aarons did not pay all of the agreed-upon amounts due for the remodel. On
May 13, 2009, La Rue brought suit against Aarons for breach of contract and
foreclosure of mechanic’s lien. La Rue alleged that it was owed $41,734.34.
2. Cross-Complaint
On June 18, 2009, Aarons brought a cross-complaint against La Rue, and its
stucco subcontractor, R. Young Enterprises (Young). Her cross-complaint alleged
causes of action, against La Rue, for breach of contract, breach of the implied covenant
1
Subsequently, both La Rue General Contractors, Inc. and William La Rue would
be named in Aarons’s cross-complaint. We use “La Rue” to refer to both the corporate
entity and the individual.
2
of good faith and fair dealing, and fraud. Aarons also alleged a cause of action for
negligence against La Rue and Young, alleging that Young had negligently restuccoed2
her home, and that La Rue had negligently supervised Young.
On July 16, 2009, La Rue answered Aarons’s cross-complaint. Among its
affirmative defenses, La Rue alleged the comparative fault of third parties.3 It does not
appear that Young filed an answer to the cross-complaint.4
3. The Parties Stipulate to Arbitration
On September 14, 2009, Aarons, La Rue and Young stipulated to binding
arbitration. All three parties agreed “that the subject matter of the involved complaint
and cross-complaint should be resolved in a single binding arbitration proceeding.” The
trial court approved the stipulation, and the matter proceeded to arbitration.
4. Aarons and La Rue Settle Their Dispute
As the date set for the arbitration hearing approached, the parties discussed
settlement possibilities. The arbitration was to occur on October 28, 2010. On
2
Specifically, Aarons alleged that Young negligently failed to install weep screeds
(which allow moisture to drain) and failed to properly cure the stucco. This resulted in
the stucco cracking, causing water to penetrate the stucco, leading to mold and wet rot.
3
La Rue did not specifically identify the allegedly negligent third parties.
4
In its designation of the record on appeal, Young designated a document entitled
“Answer by Defendant/Cross-defendant-R. Young Enterprises Inc,” purportedly filed
on July 16, 2009. No such document was included in the clerk’s transcript. Upon
discovering that several designated documents were omitted from the clerk’s transcript,
Young filed a motion to augment the record, which was granted. Although its answer
had not been included in the record, Young did not identify that document in its motion
to augment. The superior court case summary, included in the clerk’s transcript,
identifies only a single “Answer” filed on July 16, 2009; this is clearly the answer filed
by La Rue.
3
October 14, 2010, Aarons and La Rue, but not Young, settled their dispute. Pursuant to
the settlement agreement, Aarons and La Rue executed mutual releases. Aarons agreed
to assign to La Rue her right to pursue both Young and Paul Pritchard (a subcontractor
who allegedly performed negligent work on Aarons’s terrace). In return, La Rue agreed
to use its best efforts, at no cost to Aarons, to pursue damages against Young and
Pritchard. La Rue agreed to pay Aarons $5,000 from any recovery. “Said sum shall be
paid after said recovery is reduced by 33% for costs and attorneys fees (‘net recovered
amount’). La Rue and Aarons will equally split the first $10,000.00 in net recovered
amounts until Aarons receives $5,000.00.” Aarons also agreed that she would allow
La Rue to use the reports of her experts in its pursuit of the subcontractors. “Any use of
any experts retained by Ms. Aarons will be at La Rue’s sole expense.” The assignment
contemplated by the settlement was memorialized in a separate document, wherein
Aarons specifically assigned and transferred to La Rue her interest in the pending action
against Young.
Aarons and La Rue did not seek a determination, under Code of Civil Procedure
section 877.6, that their settlement was in good faith. Indeed, they did not disclose the
complete terms of the settlement to Young. (Cf. Weil & Brown, Cal. Practice Guide:
Civil Procedure Before Trial (The Rutter Group 2012) ¶ 12:879, p. 12(II)-98 (rev. # 1
2012) [suggesting that if the settling parties do not wish to disclose the terms of the
settlement, they can decline to pursue a good faith motion].)
4
Nonetheless, the record clearly indicates5 that Young was informed that the
settlement resolved all of the disputes between Aarons and La Rue, and that, as part of
the settlement, La Rue received an assignment from Aarons of the claims asserted in her
cross-complaint against Young.
5. Young Indicates It Will Not Participate in the Arbitration
On October 19, 2010, La Rue’s counsel e-mailed Young’s counsel, seeking the
status of the matter and offering a settlement. That same day, Young’s counsel
responded, “[F]or a variety of reasons Young will not be arbitrating this matter more on
this later but I am not persuaded that he is required to under the present conditions.”6
On October 22, 2010, La Rue’s counsel wrote Young’s counsel, referencing the
latter’s e-mail of October 19, 2010. La Rue’s counsel indicated that he had received no
further explanation for Young’s position, and took the position that Young was still
bound by its prior stipulation to arbitrate. At this point, La Rue’s counsel also indicated
that La Rue possessed “equitable indemnity claims” against Young.
5
Many of Young’s assertions on appeal are purportedly supported by e-mails and
letters between Young’s counsel, Attorney John Jackman, and La Rue’s counsel,
Attorney Edward Corey. While the parties ascribe different meanings to the language in
the letters and e-mails, neither party disputes the authenticity of the letters and e-mails
in the record.
6
As early as October 13, 2010, before La Rue settled with Aarons, Young’s
counsel e-mailed La Rue’s counsel, stating, “Young has not ponied up the money for
arbitration and is about to take the position that he is not a signatory to the agreement to
arbitrate and so he’s not going to participate.”
5
On October 25, 2010, Young’s counsel responded with a letter explaining that
Young had initially agreed to arbitrate only as a matter of efficiency.7 After La Rue’s
settlement with Aarons, those efficiencies no longer existed, and Young was therefore
“not amenable to arbitration” with La Rue as its adversary. Young’s counsel indicated
that he was “investigating the proper manner to bring this back to the Superior Court.”
On October 25 and October 26, 2010, several e-mails between the attorneys were
exchanged.8 La Rue’s counsel indicated that he was unpersuaded by Young’s counsel’s
letter, stating that Young “is in the exact same spot it was when it agreed to arbitration.
It is facing a claim for negligence as a result of the work at the residence. La Rue now
7
Specifically, Young stated that it “had no real forum choice prior to the
settlement. Arbitration would have resulted in an award [on Aarons’s negligence claim
against La Rue] after which litigation would resume/continue as to Aarons on the
cross-complaint against R. Young. The effects of res judicata and the possibility of
conflicting results dictated that R. Young go along. Additionally there is the cost factor;
the arbitration was being split evenly amongst three parties.”
8
Two additional points which will be relevant to our discussion were discussed in
these e-mails. First, Young’s counsel asked for a copy of the settlement agreement.
La Rue’s counsel did not transmit a copy, but instead stated, “Our deal with Aarons is
simple. We owe her the first $5000 only.” This was not entirely accurate; the terms of
the settlement agreement provided not for La Rue to pay Aarons “the first $5000,” but,
rather, for La Rue and Aarons to evenly split the first $10,000 (after attorney fees).
Second, in one e-mail, La Rue’s counsel stated, “Make an offer. La Rue resolved
R. Young’s dispute for it and they need to make [La Rue] whole.” (Italics added.)
Young would subsequently argue that this statement meant that there was no assigned
claim, in that La Rue’s settlement with Aarons resolved Aarons’s claims against both
La Rue and Young. We note that Young’s counsel did not interpret this statement in
this manner at the time. Indeed, Young’s counsel responded that La Rue’s settlement
resolved all of Aarons’s causes of action against La Rue which did not involve Young
(breach of contract, breach of the implied covenant, and fraud), and added, “This makes
it difficult to say [La Rue] solved Young’s problems.” Moreover, La Rue’s counsel
responded, approximately one hour later, “The bottom line is that La Rue now owns
[Aarons’s] claim against R. Young.”
6
owns that claim.” Young’s counsel disagreed, stating that Young had agreed to
arbitrate when La Rue and Young had planned to offer identical defenses. Young’s
counsel indicated to La Rue’s counsel, “Your expert is no longer suitable for our
needs,” and further stated that “we are not prepared to defend against [the] claims due to
the recent movement of [La Rue] from one side of the VS to the other side.” La Rue’s
counsel responded, “We never proposed having the same experts.” As no agreement
was reached on whether Young was required to arbitrate, Young’s counsel indicated
that it would be filing a motion to stay the arbitration.
On October 27, 2010, La Rue’s counsel suggested continuing the arbitration and
stipulating that the arbitration would include not only the assigned claim for negligence,
but also other causes of action which La Rue sought to pursue against Young, including
breach of contract, negligence, and indemnity. Young declined to do so, taking the
position that it had agreed only to arbitrate the single negligence cause of action in
Aarons’s cross-complaint, and accusing La Rue of “sandbagging.”
In response, La Rue’s counsel immediately9 stated it would arbitrate only the
assigned negligence claim. Counsel added, “As we will only [arbitrate] on the assigned
claim, there is no sandbagging. You were entitled to and able to prepare for that claim.
We will not raise the additional claims in the arbitration but will, of course, reserve the
right to do so in the [superior court].”
9
The responsive e-mail indicates it was sent nine minutes after Young’s counsel’s
e-mail.
7
6. Young’s Ex Parte Application to Continue or Stay the Arbitration
On October 28, 2010, the morning of the planned arbitration hearing, Young
filed an ex parte application to continue or stay the arbitration date. The application
argued good cause for a continuance existed because: (1) Young had been unable to
depose the experts, as the partial settlement suspended the depositions which had been
scheduled to go ahead on October 14, 2012; (2) Pritchard is a “necessary third party not
joined in this arbitration”; and (3) the settlement constitutes a significant, unanticipated
change in the status of the case, which rendered the case not ready to proceed, because
Young had been unable to take the necessary depositions.
As to the issue of whether Young could still be required to arbitrate the assigned
negligence claim, Young’s application was somewhat ambiguous. The application was
supported by a declaration of Young’s counsel, in which he stated that he had told
La Rue’s counsel that Young “would likely not be willing to participa[te] in binding
arbitration because he had not agreed to arbitrate the claims of [La Rue] as an assignee.”
However, the memorandum of points and authorities notes that La Rue sought to
arbitrate the assigned claim, and stated, “Young did agree to arbitrate the ‘assigned
claim.’ ”
La Rue opposed the ex parte application on several grounds. La Rue argued that
the ex parte application was untimely, as Young had known since October 14, 2010 that
La Rue had planned to proceed with the arbitration on the assigned claim, and had
stated as early as October 19, 2010 that it would not attend. La Rue also argued that
8
Young had stipulated to arbitrate the negligence claim, and that Young’s failure to
prepare for the arbitration did not justify a continuance.10
A hearing was held on the ex parte application, and it was denied. Young has
failed to designate the reporter’s transcript from the hearing on the ex parte application,
and the trial court’s order on the application, for inclusion in the record on appeal. The
basis of the trial court’s ruling is therefore unknown.11
7. The Arbitration Proceeds Without Young in Attendance
Young did not request the arbitrator to continue the arbitration. Young did not
appear, either in person or by counsel, at the arbitration. The arbitration proceeded
solely on the negligence claim assigned to La Rue by Aarons. La Rue offered the
testimony of an expert to the effect that Young negligently failed to install a weep
screed as required by the applicable building code. The expert opined that the cost to
correct and fix the problem was $34,221.19. The arbitrator found that Aarons would
have been entitled to an award against Young in that amount, and that La Rue was
10
La Rue’s counsel submitted a declaration indicating that Young did not designate
expert witnesses, nor provide any discovery as set forth in the case management order.
Additionally, La Rue’s counsel indicated that he had been advised by the arbitrator that
Young “never paid the required arbitration fees further suggesting it had no intention of
fully participating in the arbitration process.”
11
At a later hearing, the trial court stated that, “[t]he court appropriately said
address the request to continue the arbitration to the arbitrator . . . . ” It is not entirely
clear from the context of the discussion if the trial court was referring to the ruling on
the ex parte application at this point.
9
entitled to the award by virtue of the assignment from Aarons. An award issued in
favor of La Rue for $34,221.19, plus $7,566.67 in costs,12 for a total of $41,787.96.
8. Young’s Petition to Vacate the Award
On March 22, 2011, Young filed a petition to vacate the award. The record on
appeal does not contain Young’s petition or any of the evidence in support thereof.13
Based on La Rue’s opposition to the petition to vacate, it appears that Young sought to
vacate the award on the bases that: (1) Young’s counsel had lacked authority to
stipulate to arbitration; (2) the arbitration was not conducted pursuant to the stipulation
and order for arbitration, in that the arbitration could proceed only if all claims between
the parties were resolved, including La Rue’s indemnity claim; and (3) the arbitration
was unethically prosecuted by counsel for La Rue, who had previously defended against
Aarons’s cross-complaint pursuant to a joint defense agreement with Young.14
La Rue opposed the motion, and supported it with a declaration of counsel. As
to Young’s argument that the arbitration could proceed only if it included the indemnity
claim, La Rue’s counsel represented that the arbitration was specifically limited to the
12
The arbitrator denied La Rue’s request for attorney fees.
13
Young did not designate its petition to vacate the award as part of the record on
appeal. La Rue designated it in its respondent’s notice designating record. However,
the clerk’s transcript contains only Young’s notice of hearing on the petition to vacate,
not the petition itself. Although Young subsequently moved to augment the record with
mistakenly omitted documents, Young did not seek to augment the record with its
petition to vacate the award.
14
Young argued several other bases not pursued in the instant appeal, including:
(4) the award was uncertain and untimely amended (to add costs); (5) the award of costs
was beyond the arbitrator’s authority; (6) the award’s citation to exhibits rendered it
uncertain; and (7) the award was improperly served.
10
assigned negligence claim, because Young had objected to the inclusion of any claims
which were not encompassed by the stipulation to arbitrate. As to the assertion of
a joint defense agreement, La Rue’s counsel declared that no such agreement existed.
La Rue also submitted as an exhibit a copy of its settlement agreement with Aarons.
This was the first time Young had seen the settlement agreement, and Young’s
reply in support of its motion to vacate was based largely on the now-disclosed
settlement agreement. Code of Civil Procedure section 877.5 governs “sliding scale”
settlement agreements.15 Such an agreement is defined as one “between
a plaintiff . . . and one or more, but not all, alleged tortfeasor defendants, which limits
the liability of the agreeing tortfeasor defendants to an amount which is dependent upon
the amount of recovery which the plaintiff is able to recover from the nonagreeing
defendant or defendants.” (Code Civ. Proc., § 877.5, subd. (b).) Such an agreement
typically “calls for the settling defendant to participate in the trial on the plaintiff’s
behalf, and provides for a settling defendant to be credited for amounts the plaintiff
recovers from nonsettling defendants.” (Alcala Co. v. Superior Court (1996)
49 Cal.App.4th 1308, 1316.)
Young took the position that the settlement agreement between La Rue and
Aarons constituted a “sliding scale” agreement governed by Code of Civil Procedure
section 877.5, since, under the agreement, La Rue pursued Aarons’s assigned claim and
the amount Aarons would recover from La Rue (up to $5,000) depended upon the
amount La Rue ultimately recovered on Aarons’s claim against Young (equally split the
15
The agreements are also sometimes known as “Mary Carter” agreements.
11
first $10,000, net of attorney fees). Code of Civil Procedure section 877.5 provides that
no sliding scale settlement agreement is effective unless notice of intent to enter into the
agreement has been served on all nonsignatory defendants (Code Civ. Proc., § 877.5,
subd. (c)); and that the parties entering into the agreement shall promptly inform the
court of the terms and provisions of such an agreement (Code Civ. Proc., § 877.5,
subd. (a)). As it appears that La Rue and Aarons had not complied with these
provisions, Young argued that the arbitration award was tainted by La Rue’s statutory
violations.
Young further argued that the settlement agreement created a conflict of interest
for La Rue’s counsel, who, pursuant to Young’s interpretation of the settlement
agreement, actually represented Aarons against Young, and thus engaged in prohibited
successive representations of opposing parties (Aarons and La Rue) in the same
litigation.
Finally, Young argued that its rights were substantially prejudiced by the
arbitrator’s refusal to continue the arbitration. Young would ultimately concede,
however, that Young did not request the arbitrator to continue the arbitration, but had
instead sought such relief from the trial court.16
16
At a later hearing, the trial court asked counsel for Young, Attorney
David Shaby, for evidence that Young had sought a continuance from the arbitrator.
Attorney Shaby identified only the letter written by Attorney Jackman, addressed to
both La Rue’s counsel and the arbitrator, in which Attorney Jackman, on behalf of
Young, stated that he was “investigating the proper manner to bring this back to the
Superior Court.” When the trial court subsequently stated, “I see nothing that shows
any request for continuance having been made to” the arbitrator, Attorney Shaby stated,
“Your Honor, I’ve got to fall on the sword there.”
12
At the hearing on the motion to vacate, La Rue responded to the arguments
raised by Young for the first time in its reply memorandum. Specifically, La Rue
denied that the settlement agreement was a sliding scale agreement subject to the
requirements of Code of Civil Procedure section 877.5. The trial court concluded that
Young could not establish prejudice from any alleged error because it had failed to
attend the arbitration. The trial court denied the motion to vacate.
9. La Rue’s Petition to Confirm the Award
On August 3, 2011, La Rue petitioned to confirm the arbitrator’s award. In
opposition, Young relied on several grounds it had pursued in connection with its
unsuccessful petition to vacate. Specifically, Young argued that the arbitration award
could not be confirmed because it: (1) violated the trial court’s order for a single
arbitration; (2) violated Young’s attorney work-product privilege under the common
interest doctrine; and (3) was the product of a fraudulently concealed sliding scale
settlement agreement.
As to the first ground, Young argued that the agreement to arbitrate encompassed
all issues in the pending litigation. As La Rue sought to withhold its indemnity claim
against Young for resolution in another forum, the arbitration was outside the scope of
the stipulation and order for arbitration.17 As to the second ground, Young presented
17
In support of its motion, Young submitted a declaration of Attorney Jackman,
which stated that after Young’s ex parte motion for a continuance was denied, La Rue
“announced the arbitration would proceed on the ‘assigned claim’ only.” The
chronology is mistaken. La Rue indicated the arbitration would proceed only on the
assigned claim prior to Young’s ex parte motion. Indeed, Young’s ex parte motion
13
the declaration of his counsel to the effect that Young and La Rue had agreed to present
a joint defense (to Aarons’s cross-complaint) with Young relying on La Rue’s experts,
and the two cross-defendants agreeing not to bring cross-actions against each other. He
further stated that he had met with La Rue’s counsel and shared information and
strategy regarding the joint defense of the case. In short, Young argued that La Rue’s
counsel was made privy to Young’s confidential information and “should have been
disqualified from prosecuting any action against Young.” On the third ground, Young
argued that he was harmed by the failure to disclose the sliding scale settlement
agreement, because, had it been disclosed, he “would have received credit for the value
of the Settlement Agreement to Aarons against any judgment recovered against Young
in the negligence claim.”
At the hearing on the motion,18 counsel for La Rue again disputed the existence
of a joint defense agreement. La Rue further argued that any of the issues raised by
Young in its opposition to the motion to confirm could and should have been raised by
Young at the arbitration hearing. The trial court agreed, indicating that Young did not
appear at the arbitration and seek a continuance or any other remedy. Young’s counsel
stated, “It was my decision not to participate in the arbitration because the arbitration
that was being conducted was not what we agreed upon, and Young had some very
viable defenses that he could have raised at the arbitration, but we wanted to preserve
referenced La Rue’s counsel’s e-mail stating he would proceed in arbitration only on the
assigned claim.
18
No reply memorandum was filed.
14
his right to object, and we did not want to give the impression that we had waived any
of those objections by attending the arbitration.” The trial court responded, “I actually
think it’s quite the opposite. I think you waived them by not attending the arbitration.
All that could have been put before the arbitrator and was not.” Young then argued that
he had not known, at the time of the arbitration, that the settlement agreement was
a sliding scale settlement agreement. The trial court concluded that the settlement
agreement was not a sliding scale agreement within the meaning of Code of Civil
Procedure section 877.5. The court then concluded that the arbitration was not obtained
through corruption, fraud, or other unfair means. The court further concluded that it
could not assess whether there was any prejudice because Young had failed to appear
before the arbitrator, seek a continuance in that forum, or otherwise raise its concerns
before the arbitrator. The court granted the motion to confirm the award.
10. Judgment and Appeal
Judgment was entered in favor of La Rue in the amount of $41,787.96. Young
filed a timely notice of appeal.19
CONTENTIONS ON APPEAL
On appeal, Young argues the arbitration award should not have been confirmed
for three reasons. First, Young argues that the arbitration award entered against him
was entered on La Rue’s indemnity claim, and that the parties had not agreed to
19
The judgment was filed on October 31, 2011. Young’s notice of appeal was filed
prematurely, on October 14, 2011. Pursuant to California Rules of Court, rule 8.308(c),
we construe the notice of appeal as filed immediately after the entry of judgment. The
notice of appeal also indicates that the appeal is taken from an order after judgment.
We construe the notice as an appeal from the judgment itself.
15
arbitrate the indemnity claim. Second, Young argues that the award was the result of
the concealment, in violation of Code of Civil Procedure section 877.5, of a sliding
scale settlement agreement. Third, Young argues that La Rue’s counsel was ethically
disqualified from conducting the arbitration against Young. We reject each argument
and affirm.
DISCUSSION
1. Standard of Review
It is the general rule that, with narrow exceptions, an arbitrator’s decision cannot
be reviewed for errors of fact or law. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1,
11.) Young seeks to rely on two such exceptions: (1) an award can be vacated if the
arbitrator exceeded its powers (Code Civ. Proc., § 1286.2, subd. (a)(4)); and (2) an
award can be vacated if it was procured by corruption, fraud, or other undue means
(Code Civ. Proc., § 1286.2, subd. (a)(1)). In reviewing whether the arbitrator exceeded
its powers by deciding an issue not before it, our review is de novo. (Ajida
Technologies, Inc. v. Roos Instruments, Inc. (2001) 87 Cal.App.4th 534, 541.) For an
unsuccessful party at an arbitration to prevail on a claim of corruption, fraud, or undue
means, that party must establish not only the corruption, fraud, or undue means, but also
that the party was prejudiced as a result. (Comerica Bank v. Howsam (2012)
208 Cal.App.4th 790, 826.)
16
2. The Arbitration Award Was Not Based on an Indemnity Claim
In complete contrast to the positions it took before the trial court, Young argues
that the arbitration award was based on La Rue’s claim against it for indemnity, rather
than on Aarons’s assigned cause of action for negligence.
Young appears to argue that, pursuant to the settlement agreement, La Rue settled
Aarons’s disputes with both La Rue and Young, and was therefore pursuing an
indemnity claim against Young, the only possible claim remaining. Young bases this
argument on one sentence from an e-mail from La Rue’s counsel, taken out of context,
in which La Rue’s counsel stated, “La Rue resolved R. Young’s dispute for it and they
need to make [La Rue] whole.” Young also relies on the mutual release paragraph of
the settlement agreement, in which La Rue and Aarons agreed to release each other
“and their subsidiaries, successors, predecessors, affiliates, assigns, officers, directors,
employees, agents, servants, attorneys [and] insurance companies.”
This premise, that the arbitration proceeded on La Rue’s indemnity claim, is
contradicted by the record. La Rue’s counsel’s other letters and e-mails clearly indicate
that La Rue chose not to arbitrate its indemnity claim and proceeded to arbitrate only
the assigned negligence claim. The settlement agreement between La Rue and Aarons
provided for mutual releases, but did not release La Rue’s subcontractors, and
specifically provided that Aarons’s rights against Young were assigned to La Rue.
Moreover, the arbitration award itself expressly indicates that it was based solely on the
assigned negligence cause of action. Indeed, at the hearing on the petition to compel,
17
Attorney Shaby, for Young, stated, “the arbitration went forward as to the assign[ed]
claims only.”20
As such, we need not consider whether any indemnity claim was within the
scope of the stipulation to arbitrate. That cause of action was simply not arbitrated. The
only cause of action arbitrated was Aarons’s cause of action against Young for
negligence, which had been assigned to La Rue.
3. The Settlement Agreement Was Not Improperly Concealed
Young next argues that the settlement agreement between La Rue and Aarons
was improperly concealed. There is no statutory requirement that a settlement
agreement generally be disclosed to a non-settling party. Young argues, however, that
the agreement in this case was a sliding scale agreement, subject to disclosure
requirements under Code of Civil Procedure section 887.5.
As noted above, a sliding scale settlement agreement is one “between
a plaintiff . . . and one or more, but not all, alleged tortfeasor defendants, which limits
the liability of the agreeing tortfeasor defendants to an amount which is dependent upon
the amount of recovery which the plaintiff is able to recover from the nonagreeing
defendant or defendants.” (Code Civ. Proc., § 877.5, subd. (b).) While, at first blush,
20
That Young’s argument on appeal is completely undermined by both the record
and its arguments below is clear. Indeed, in its brief on appeal, Young argues that the
trial court erred in denying its application to continue the action because the court “had
jurisdiction to stay the pending arbitration and consider arbitrability of the newly
manufactured claim of indemnity.” The record, however, establishes that Young did
not seek to continue the arbitration for a determination of the arbitrability of La Rue’s
indemnity claim. Rather, Young conceded in its application for continuance that
La Rue had indicated it would proceed to arbitration only on the assigned negligence
claim.
18
the settlement agreement in this case appears to fall within this statutory language, in
reality, it does not. Under the settlement agreement, La Rue agreed to pay Aarons up to
$5000, if it recovered twice that amount on the assigned negligence claim. Thus, the
amount which La Rue agreed to pay Aarons was dependent on the amount which
La Rue (the settling defendant) would recover from Young, not the amount Aarons (the
plaintiff) would recover from Young. As such, it did not fall within the language of
Code of Civil Procedure section 887.5.21
Moreover, the agreement did not fall within the spirit of Code of Civil Procedure
section 887.5. In the typical sliding scale agreement, the settling defendant guarantees
that the plaintiff will receive a certain amount, and if the plaintiff does not receive that
amount from the nonsettling defendants, the settling defendant will make up the
difference. (E.g., Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 866.)
When the settling defendant remains in the action, there is a possibility for the
nonsettling parties, the court, or the jury, to be misled, because the settling defendant is,
in fact, aligned with the plaintiff. (Alcala Co. v. Superior Court, supra, 49 Cal.App.4th
at pp. 1314, 1317.) It is in the settling defendant’s financial interest for the plaintiff to
21
Young does not specifically argue against the trial court’s conclusion that the
settlement agreement was not a sliding scale agreement within the meaning of Code of
Civil Procedure section 887.5; Young simply assumes that the agreement is subject to
the statute. To the extent that Young makes such an argument, Young merely states,
“[t]he settling Defendant, [La Rue], participated at the arbitration on behalf of the
Plaintiff and the settling Defendant ([La Rue]) received credit from what he recovers
from the non-settling Defendant, Young.” This is a misstatement of the terms of the
settlement agreement. The agreement did not provide that La Rue would pay Aarons
$5,000 unconditionally, and would receive credit against that amount based on the
recovery from Young. Instead, the agreement provided that La Rue owed Aarons
nothing, unless there was a recovery against Young.
19
receive the highest possible judgment from the nonsettling defendants, as this will
reduce the amount the settling defendant will be required to pay under the agreement.
For this reason, the Legislature has mandated the disclosure of sliding scale agreements.
“By eliminating the secrecy of sliding scale agreements the Legislature has avoided the
primary mischief that the fact finder will not understand the true alignment of the
interests of the litigating parties and their witnesses.” (Id. at p. 1317.)
But that mischief is not possible in a case such as this one, where the plaintiff’s
cause of action against the nonsettling defendant has been assigned to the settling
defendant. In that situation, the trier of fact is well aware that the settling defendant has
been realigned with the plaintiff; the settling defendant is pursuing the plaintiff’s cause
of action. Thus, no disclosure is necessary, and there is no reason to bring such an
agreement into the limited scope of Code of Civil Procedure section 887.5.22
In short, the agreement did not fall within the letter or spirit of Code of Civil
Procedure section 887.5, so disclosure was not necessary. Thus, the award was not
tainted by fraud for the failure to disclose the settlement agreement.
We pause, however, to address a misunderstanding in Young’s briefing on the
issue of prejudice. Young argues that, pursuant to the settlement agreement, La Rue
“has been absolved of any and all responsibility” and that La Rue “left Young, his
22
Putting it another way, La Rue had an incentive to obtain a large recovery on
Aarons’s assigned claim against Young not because it would lessen La Rue’s obligation
to pay Aarons (a sliding scale agreement), but because La Rue would receive half of the
first $10,000 net recovered and everything over that amount. It was the assignment, not
the sliding scale nature of the amount to be paid Aarons, which changed the alignment
of the parties. The assignment, however, was fully disclosed to both Young and the
arbitrator, so there was no danger of either of them being misled.
20
sub-contractor, solely responsible for the liability.” This is, to some degree, untrue.
A settlement entered into in good faith has two immediate effects: first, it discharges
the settling defendant from liability for contribution or indemnity to the nonsettling
defendants (Code Civ. Proc., §§ 877, subd. (b), 877.6, subd. (c)); and second; it reduces
the claims against the nonsettling defendants in the amount stipulated by the release, or
the amount of consideration paid for it, whichever is greater23 (Code Civ. Proc., § 877,
subd. (a)). There is a statutory procedure for obtaining a ruling on the issue of the good
faith of such a settlement. (Code Civ. Proc., § 877.6.) In this case, La Rue and Aarons
did not seek a determination of the good faith of their settlement. Therefore, Young
would not be barred by the settlement from pursuing La Rue for contribution or
indemnity.
4. La Rue’s Counsel Was Not Disqualified
Finally, Young argues that La Rue’s counsel was ethically disqualified from
pursuing the assigned claim in arbitration, because of: (1) confidential information
La Rue’s counsel had learned pursuant to an alleged joint defense agreement; and
(2) counsel’s successive representation of La Rue and Aarons, opposing parties in the
same litigation.
Preliminarily, this assertion is barred by Young’s failure to move for La Rue’s
counsel’s disqualification. If Young believed that La Rue’s counsel should have been
23
When, as here, non-monetary consideration is given, such as the dismissal of
La Rue’s complaint against Aarons and the assignment of Aarons’s cross-complaint
against Young, the settling parties are required to calculate a value of the consideration
given. (Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d at pp. 878-879; Arbuthnot
v. Relocation Realty Service Corp. (1991) 227 Cal.App.3d 682, 690.)
21
disqualified from pursuing the assigned claim, it should have moved for counsel’s
disqualification.24 Instead, Young did not so move, did not participate in the arbitration
at all, allowed an award to be entered against it, and then attempted to raise the assertion
in its challenge to the award.
In any event, the challenge is meritless. The trial court concluded that there was
no joint defense agreement. This conclusion is supported by substantial, if not
overwhelming, evidence. Young never presented the court with any such written
agreement, nor any communications from La Rue documenting such an agreement.
Instead, the e-mails between counsel for Young and La Rue indicate that, while the
parties were generally aligned against Aarons, both parties left open the possibility of
pursuing each other for Aarons’s damages.25 Moreover, there was no improper
successive representation. La Rue’s counsel never represented Aarons; La Rue simply
accepted assignment of Aarons’s claim against Young. Young believes that there was
24
Young was aware that La Rue was pursuing the assigned claim against it in the
arbitration shortly after the settlement was made; thus, its concerns about La Rue’s
counsel possibly using confidential information against it existed before it first moved
to continue the arbitration in the trial court.
25
Indeed, on October 13, 2010, Attorney Jackman, on behalf of Young, e-mailed
La Rue’s counsel indicating that Aarons had offered a settlement under which all parties
walk away and Young was considering accepting the deal. Attorney Jackman stated,
“I’m not going to leave [La Rue] out there on his own until absolutely necessary but at
some point my guy is going to take the deal and take his chances with [La Rue].”
Another e-mail shows Attorney Jackman taking the position that La Rue had no
indemnity rights against Young because they had no written contract. Both of these
e-mails predated La Rue’s settlement with Aarons.
22
a successive representation,26 in that the settlement agreement provided, “La Rue
represents that it will use its best efforts, at no cost to Aarons, to pursue in arbitration or
otherwise, damages against” Young and Pritchard. This language is merely an
agreement for La Rue to use its best efforts in pursuing the assigned claims; not an
agreement for La Rue’s counsel to represent Aarons.
26
We note that Young’s argument that La Rue represented Aarons against Young
is contrary to Young’s argument that La Rue settled Aarons’s claims against Young and
simply arbitrated its own indemnity claim against Young. Both arguments, however,
are contrary to the record. La Rue pursued an assigned negligence claim against Young,
nothing more.
23
DISPOSITION
The judgment confirming the arbitration award is affirmed. La Rue shall recover
its costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
CROSKEY, Acting P. J.
WE CONCUR:
KITCHING, J.
ALDRICH, J.
24