Alston v. Hoge CA1/1 ( 2014 )

Filed 7/29/14 Alston v. Hoge CA1/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
GERALD K. ALSTON,
Plaintiff and Appellant,
A139778
v.
RONALD HOGE et al., (Alameda County
Super. Ct. No. RG10549562)
Defendants and Respondents.
Gerald K. Alston appeals from a judgment confirming an arbitration award
rendered after he was compelled by court order to arbitrate his complaint against Glacier
Bay, Inc. (GB) and respondents Ronald Hoge and Marc Hoffman. Alston contends the
trial court erred in ordering the matter to arbitration in the first instance. We disagree,
and affirm the judgment.
I. BACKGROUND
A. The Arbitration Agreement
Alston founded GB in 1990. The company sold refrigeration systems and power
generation control systems for use in a range of industries. In 2006, Alston entered into
an agreement with New Enterprise Associates (NEA), a private equity firm, to take an
equity position in exchange for an investment to help build the company. Both NEA and
Alston received stock in GB under this arrangement. Initially, Alston was chief
executive officer (CEO) and NEA had Hoge take a seat on the board of directors. Due to
disagreements about the company’s direction, Alston left the CEO position in 2007 and
became GB’s chief technology officer (CTO). In February 2009, Alston resigned as
CTO and began to work on ideas for a new company. He remained a shareholder of GB,1
and continued to serve as a director on its board.
In March 2009, Alston entered into a “Transition and Consulting Agreement” (the
Agreement) in conjunction with his resignation as CTO. The Agreement touched upon a
range of issues concerning the termination of Alston’s employment and his future
relationship with GB. The parties agreed on the end date of Alston’s employment
relationship with GB and specified GB’s remaining financial obligations to him as an
employee, such as payment for his unused paid time off and business-related expenses.
Simultaneously, and in exchange for Alston’s abiding by the terms of the Agreement and
signing a release of claims against GB and “its officers, directors, agents, servants,
employees,” GB agreed to engage Alston to serve as a part-time consultant to GB
(40 hours per month) for a 12-month period at a salary of $20,000 per month, plus certain
other benefits, such as providing office space and health insurance premium
reimbursement. The release covered claims of any nature “arising out of or in any way
related to events, acts or omissions occurring any time up to and including” the date
Alston signed the Agreement, exclusive of his rights under the Agreement.
Alston further agreed not to “use, disclose or reproduce” GB’s proprietary and
confidential information, not to engage in a competing business, and not to disparage GB
and its officers, directors, and employees. The Agreement also expressly confirmed that
Alston had ongoing, postemployment duties under an “Employee Confidentiality and
Inventions Agreement” he had signed in 2006 (attached as exhibit B to the Agreement),
including that GB had rights in any valuable intellectual property Alston conceived or
developed through the use of company trade secrets, confidential information, equipment,
or facilities, whether before or after his employment.
1
As of 2009, Alston owned approximately 7 percent of GB’s common stock,
which was not publicly traded and was subject to some restrictions. GB also had a large
number of preferred shares outstanding.
2
The Agreement contained two other paragraphs the parties rely upon in this
appeal:
“4. Other Relationships/Agreements. You are a stockholder of the Company
and currently serve as a director on the Board of Directors of the Company (the ‘Board’).
Except as expressly provided herein, nothing in this Agreement shall modify any rights,
duties or obligations you have with respect to your status and roles as a stockholder or as
a director of the Company or any written agreements with respect thereto, including,
without limitation [specifying various agreements and stock warrants restricting the sale
of GB stock].”2 (Italics added.)
“13. Dispute Resolution. To ensure rapid and economical resolution of any
disputes regarding this Agreement, you and the Company hereby agree that any and all
claims, disputes or controversies of any nature whatsoever arising out of, or relating to,
this Agreement, or its interpretation, enforcement, breach, performance or execution,
your relationship with the Company, or the termination of any such relationship, shall be
resolved, to the fullest extent permitted by law, by final, binding and confidential
arbitration . . . .” (Italics added.)
B. The Lawsuit
Alston signed the Agreement on March 13, 2009. On September 3, 2010, GB
terminated Alston as a director on the stated grounds Alston’s new business pursuit was
in competition with GB and violated his fiduciary duties as a director.3 Alston sued
respondents and GB in December 2010, alleging causes of action for (1) intentional
misrepresentation (against all defendants), (2) negligent misrepresentation (all
defendants), (3) declaratory relief (GB only), (4) commercial defamation (GB and
2
Paragraph 5 of the Agreement does appear to modify Alston’s rights under a
“Stock Restriction Agreement” or at least to clarify their application in light of his
changed status.
3
Alston alleged in this lawsuit the stated reason was pretextual, and he was
terminated as a director for seeking to expose financial fraud by respondents.
3
Hoffman), (5) interference with prospective economic advantage (GB and Hoffman), and
(6) wrongful termination as director (GB only). He demanded a jury trial.
Alston’s two misrepresentation causes of action alleged Hoge and Hoffman
misrepresented GB’s financial and marketing information to potential investors during
2008 through 2010, and created an elaborate scheme to inflate the company’s sales
numbers. He alleged he refrained from selling his stock in the company based at least in
part on these representations, and sustained substantial losses to the value of the stock as
a result.
Alston’s third cause of action sought a declaratory judgment that GB had no
ownership interest in intellectual property he alleged he developed after resigning his
position as CTO, and that he had not violated his fiduciary duties as a GB director by
pursuing his new company.
Alston’s commercial defamation and interference with prospective economic
advantage claims were premised on allegations that for the purpose of harming his
reputation and with knowledge of his prospective economic relationships with certain
potential customers of his new business, GB and Hoffman communicated false and
derogatory statements to the customers, including that GB had title to his intellectual
property and he was violating his fiduciary duties as a director of GB.
Alston’s sixth cause of action for wrongful termination alleged GB terminated him
as a director because of his reports of financial fraud within the company and repeated
requests for an investigation.
C. Arbitration and Confirmation of the Award
In reliance on paragraph 13 of the Agreement, respondents and GB petitioned to
compel arbitration of Alston’s complaint and to stay proceedings in the trial court. The
trial court granted the petition, ordered all of Alston’s claims to arbitration as provided in
the Agreement, and stayed the action in its entirety pending the outcome of the
arbitration.
In the arbitration proceeding, Alston dismissed his claims for declaratory relief,
commercial defamation, interference with prospective advantage, and wrongful removal
4
from the board of directors. Following an arbitration hearing, the arbitrator entered an
award denying Alston’s claims in their entirety and awarding attorney fees to
respondents. Alston’s ensuing petitions to vacate the awards were denied, and
respondents’ petition to confirm the award was granted. Alston timely appealed from the
ensuing judgment in favor of respondents.4
II. DISCUSSION
Alston contends none of his causes of action were subject to arbitration and even if
some of the causes of action had been subject to arbitration, the trial court erred by
sending the entire case to arbitration.
A. Standard of Review
In cases like this one where “no conflicting extrinsic evidence [was] introduced to
aid the interpretation of an agreement to arbitrate, the Court of Appeal reviews de novo a
trial court’s ruling on a petition to compel arbitration.” (California Correctional Peace
Officers Assn. v. State of California (2006) 142 Cal. App. 4th 198, 204.)
“Although ‘[t]he law favors contracts for arbitration of disputes between parties’
[citation], ‘ “there is no policy compelling persons to accept arbitration of controversies
which they have not agreed to arbitrate . . . .” ’ [Citations.] In determining the scope of
an arbitration clause, ‘[t]he court should attempt to give effect to the parties’ intentions,
in light of the usual and ordinary meaning of the contractual language and the
circumstances under which the agreement was made [citation].’ ” (Victoria v. Superior
Court (1985) 40 Cal. 3d 734, 744.)
The de novo review standard likewise applies to the question of respondents’
rights to enforce the arbitration agreement between GB and Alston. “Whether and to
what extent [nonsignatories] can also enforce the arbitration clause is a question of law,
which we review de novo.” (Rowe v. Exline (2007) 153 Cal. App. 4th 1276, 1283 (Rowe);
see also Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010)
186 Cal. App. 4th 696, 707–708.)
4
GB has apparently been dissolved, and is not a party to this appeal.
5
B. Respondents’ Right to Enforce the Arbitration Agreement
Alston’s causes of action for intentional and negligent misrepresentation, and
interference with prospective advantage, were alleged against Hoge and/or Hoffman as
well as against GB. Alston maintains the trial court erred in sending these claims to
arbitration even if they otherwise came within the arbitration agreement, because neither
Hoge nor Hoffman was a party to the agreement. Although a signatory to the Agreement
in his capacity as CEO of GB, Hoffman did not sign in his individual capacity and his
signature therefore did not make him a party to it. (See Benasra v. Marciano (2001)
92 Cal. App. 4th 987, 990.)
Numerous cases recognize that agents of a signatory party, sued in that capacity by
another party to an agreement, are entitled to the benefit of the agreement’s arbitration
provisions. (See, e.g., Dryer v. Los Angeles Rams (1985) 40 Cal. 3d 406, 418 [individual
nonsignatory defendants acting as agents for the Rams were entitled to the benefit of the
arbitration provisions]; Thomas v. Westlake (2012) 204 Cal. App. 4th 605, 614 [when
plaintiff alleges defendant acted as an agent of a party to an arbitration agreement,
defendant may enforce the agreement even though not a party thereto]; Pritzker v. Merrill
Lynch, Pierce, Fenner & Smith (3d Cir. 1993) 7 F.3d 1110, 1121 [because a principal is
bound by a valid arbitration clause, its agent, employees and representatives are also
covered]; Nguyen v. Tran (2007) 157 Cal. App. 4th 1032, 1037 [same]; Rowe, supra,
153 Cal.App.4th at pp. 1284–1285 [corporate officers sued as alter ego and agent can
enforce arbitration agreement]; Lewsadder v. Mitchum, Jones & Templeton, Inc. (1973)
36 Cal. App. 3d 255, 261 [nonsignatory officer may compel arbitration].)
Here, it is undisputed Hoge and Hoffman both had preexisting agency
relationships with GB. Alston’s complaint alleged that at times pertinent to the dispute
both Hoge and Hoffman had “been a Chief Executive Officer and Director of Glacier
Bay,” and thus agents of the signatory corporation. Alston’s complaint likewise alleges,
“Any allegation about acts of [GB] means that [GB] did the acts alleged through its
officers, directors, employees, agents, and/or representatives while they were acting
within the actual or ostensible scope of their authority.” The misrepresentation claims are
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explicitly based on an agency theory that GB’s “new management,” specifically Hoge
and Hoffman, worked in concert to present fraudulent financial information in order to
attract and retain investors for GB. Although not as explicit, it may be inferred from
Alston’s interference with prospective advantage allegations that Hoffman undertook the
offending actions as an agent for GB in retaliating against Alston for seeking to expose
the company’s financial fraud.
Respondents were sued here in their capacities as agents of GB and were entitled
to the benefit of the arbitration provisions in Alston’s written agreement with the
company, if those provisions covered the claims he asserted against them. Alston claims
this principle does not apply since he did not rely on terms of the Agreement to impose
liability on respondents. We do not agree. It is true that if a signatory plaintiff sues a
nonsignatory defendant claiming rights under a contract containing an arbitration clause,
the nonsignatory would have a right to enforce the arbitration clause under equitable
estoppel principles only insofar as the claims are based on the same facts and are
inherently inseparable from his arbitrable claims against the signatory defendant. (See
Boucher v. Alliance Title Co., Inc. (2005) 127 Cal. App. 4th 262, 272 [“a party may not
make use of a contract containing an arbitration clause and then attempt to avoid the duty
to arbitrate”].) But we do not rely on equitable estoppel to find that respondents, sued
here for their conduct and in their capacity as agents of GB, may assert GB’s right to
arbitration. The agency cases cited ante rely on principal-agent law, not estoppel. Alston
provides no authority suggesting persons sued as agents of a corporate party must show
the plaintiff is basing their liability on the terms of the contract with the corporation in
order to enforce the arbitration agreement.
Alston also cites the fact that GB was winding down its operations before the
arbitration began, and assertedly “did not participate in the arbitration in any way.”
According to Alston, nonsignatory agents of a corporation are not entitled to arbitration if
the corporation is winding down or has ceased to exist and does not participate in the
arbitration proceeding. Alston cites no authority for this proposition, and he fails to
explain why the happenstance of GB’s financial distress should relieve him of the
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contractual duty to arbitrate claims against its agents or deprive the agents of the
protection afforded to them by agency law.5
We turn now to Alston’s contention that his causes of action, or some of them, did
not come within the scope of paragraph 13 of the Agreement.
C. Scope of Arbitration Agreement
The arbitration agreement in this case covered all claims, disputes, and
controversies of any nature arising out of or relating to (1) the Agreement; (2) the
interpretation, enforcement, breach, performance, or execution of the Agreement; and
(3) Alston’s “relationship” with GB or the termination of that relationship.
According to respondents, Alston’s “relationship” to GB for purposes of
paragraph 13 encompasses all of the relationships touched upon by the Agreement,
including the employment relationship that was being terminated (addressed by
paragraph 1) and the consultancy that was being created (addressed by paragraph 2), as
well as his “Other Relationships” with GB as a stockholder and as a director, which were
addressed in paragraphs 4, 5, and 6 of the Agreement. Paragraph 4, which Alston views
as an all-important limitation on the scope of the Agreement, provides that the
termination of Alston’s employment relationship with GB would not alter his preexisting
status, rights, and obligations as a stockholder or director “[e]xcept as expressly
provided” in the Agreement. Paragraph 5 specifies how his vesting rights under a
particular stock restriction agreement would be determined based on his future service as
a director. Paragraph 6 provided that as long as Alston served “as an employee,
consultant and/or director” of GB he could not interfere with GB’s business relationships
5
In any event, the premise of Alston’s argument is not supported by the record.
Although GB did not file a response to Alston’s demand for arbitration proceeding, or
appear in the evidentiary portion of the arbitral hearing on the merits, it did appear
through counsel in prehearing proceedings, and in successfully opposing Alston’s motion
for discovery sanctions against it on the first day of the arbitral hearing. GB was
identified as a party to the arbitration in the final award, and the award ran in its favor as
well as in favor of Hoge and Hoffman. The award also assessed arbitration fees against
GB in favor of Hoge, Hoffman, and Alston.
8
or engage in competitive activities, or activities creating “an actual or apparent conflict of
interest,” and it specified the Agreement did not modify or limit the fiduciary duties he
owed to GB “by virtue of [his] status as a Board member or otherwise.” The Agreement
addresses still other relationships or potential relationships between Alston and GB.
Paragraph 7 barred him from disparaging GB or any of its officers, directors, employees,
shareholders, agents, products, or services. Paragraph 2 reconfirms Alston had
continuing duties with respect to his use of intellectual property conceived or developed
using GB’s trade secrets, confidential information, or resources, whether before or after
his term of employment.
Alston contends the Agreement is nothing more than a “one-year consulting
agreement” and that its arbitration provision applies solely to disputes arising from that
limited relationship. We disagree. Alston’s “Consulting Services Agreement” with GB
was addressed in one paragraph of the Agreement, paragraph 2. As described above, the
Agreement encompassed other operative paragraphs independent of and outlasting the
term of Alston’s consultancy. These too are part of the context for understanding the
parties’ intent in agreeing to arbitrate “any and all claims, disputes or controversies of
any nature whatsoever arising out of, or relating to, this Agreement, or . . . your
relationship with the Company, or the termination of any such relationship . . . .” If the
reference to Alston’s “relationship with the Company” in paragraph 13 meant only his
consultancy relationship, the language would be entirely superfluous because disputes
arising from that relationship would already be covered by the preceding language
concerning disputes arising out of or relating to “this Agreement.” In view of the
conflicts that had already arisen between Alston and GB’s management, it is certainly not
surprising that GB would have wanted to negotiate a broad arbitration agreement with
Alston covering all potential disputes and claims that might arise in any of his ongoing
relationships with the company.
Once respondents established the existence of a valid arbitration agreement
covering them, it became Alston’s burden to “ ‘ “demonstrate that [the] arbitration clause
cannot be interpreted to require arbitration of the dispute.” ’ [Citation.] In other words,
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‘an order to arbitrate a particular grievance should not be denied unless it may be said
with positive assurance that the arbitration clause is not susceptible of an interpretation
that covers the asserted dispute.’ (Dryer v. Los Angeles Rams[, supra,] 40 Cal. 3d 406,
414.” (Titolo v. Cano (2007) 157 Cal. App. 4th 310, 316–317.)
Construing the arbitration language of paragraph 13 in light of the multiple
relationships and duties addressed by the Agreement—including Alston’s stockholder
and director relationships with GB, and his ongoing duties with respect to GB’s
intellectual property rights and business reputation—we find the arbitration agreement is
reasonably construed to cover all claims, disputes, or controversies of any nature arising
out of, relating to, or requiring interpretation or enforcement with respect to any of these
relationships or duties. Further, we specifically reject Alston’s thesis that paragraph 4 of
the Agreement excludes or exempts from the arbitration agreement any dispute arising
from his relationships to the company as a shareholder or director. In our view, the intent
of this paragraph is merely to confirm that the termination of Alston’s employment
relationship with GB would not in itself affect his status as a stockholder or director, or
his rights and obligations under certain stock restriction agreements to which he was
subject. It is not a blanket exemption of those relationships from the purview of the
Agreement. By requiring arbitration of all disputes arising from his “relationship with
the Company, or the termination of any such relationship,” the Agreement does in fact
expressly modify Alston’s rights as a shareholder and director, assuming for purposes of
analysis that the phrase “rights, duties or obligations” as used in paragraph 4
encompasses the right to seek legal redress in the courts.
Alston’s specific causes of action in this case do arise out of relationships
addressed in the Agreement and come within paragraph 13. His misrepresentation claims
arose out of and relate to his relationship with GB as an investor/shareholder as
confirmed and modified by the Agreement. The declaratory relief, defamation, and
interference with prospective advantage causes of action arose out of, relate to, or would
have involved interpretation of (1) Alston’s postemployment duties with respect to GB’s
asserted intellectual property (paragraph 2(i) and exhibit B), (2) the scope of his ongoing
10
fiduciary duties to GB as a director (paragraph 6(c)), and (3) his agreement not to engage
in competitive activity (paragraph 6(b)). Alston’s sixth cause of action for wrongful
termination of him as a director arose from, related to, or would have required
interpretation of (1) his fiduciary duties as a director under paragraph 6(c) of the
Agreement, and (2) his agreement not to disparage GB or its officers, directors, and
employees under paragraph 7.
In sum, we find the arbitration agreement in this case was extremely broad in
scope, can reasonably be construed to encompass all of Alston’s causes of action against
respondents and GB, and was fully enforceable by respondents with respect to the claims
against them. The trial court did not err by compelling arbitration of the entire dispute.
III. DISPOSITION
The judgment is affirmed.
_________________________
Margulies, Acting P.J.
We concur:
_________________________
Dondero, J.
_________________________
Banke, J.
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