Carothers v. Carothers Disante & Freudenberger CA2/5 ( 2022 )

Filed 10/25/22 Carothers v. Carothers Disante & Freudenberger CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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 FIVE
DAVE CAROTHERS, B313290
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No.
v. 20STCV39320)
CAROTHERS DISANTE &
FREUDENBERGER LLP,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County, John P. Doyle, Judge. Affirmed.
Akerman, Damien P. DeLaney, and Brian M. Noh for
Defendant and Appellant.
Miller Barondess, Mira Hashmall, and Erik L. Wilson for
Plaintiff and Respondent.
Defendant and appellant Carothers DiSante &
Freudenberger, LLP (CDF), a law firm, appeals from denial of its
motion to compel arbitration of employment discrimination and
retaliation claims filed against it by its erstwhile partner,
plaintiff and respondent Dave Carothers (Carothers). CDF
moved to compel arbitration of Carothers’s claims based on an
arbitration clause in the partnership agreement that Carothers
signed when he became an equity partner at the firm—though he
later transitioned to a non-equity partner role governed by an
employment agreement. We principally consider whether any of
Carothers’s claims against CDF fall within the scope of the
arbitration provision that applies to disagreements concerning
the “interpretation, application, breach or enforcement” of the
equity partnership agreement or “any question arising
[there]under.”
I. BACKGROUND
A. Carothers’s Tenure at CDF
Our recitation of the facts concerning Carothers’s tenure at
CDF is as alleged in his operative complaint.
Carothers, a Black man, became an equity partner in CDF
in the early 2000s.1 In 2017, Carothers began suffering from
health issues. In or around the fall of 2018, Carothers obtained a
diagnosis for his condition, and learned it would require surgery.
When he disclosed his symptoms to CDF, he received comments
like, “‘That’s what happens when you get old.’”
1
When Carothers joined the firm, CDF stood for Carlton
DiSante & Freudenberger. In 2011, CDF changed its name to
“Carothers DiSante & Freudenberger” in recognition of
Carothers’s contributions to the firm.
2
Later that year, CDF did not give Carothers his year-end
payout, which typically represented about 40 percent of his
annual compensation. When asked why, CDF said it withheld
the compensation because one of Carothers’s clients, for whom he
achieved a favorable result at trial in Vista, had only paid about
half of its bill (the Vista matter). Carothers had not seen a
payout withheld due to a collections issue before.
Carothers was out of the office on medical leave from
January to July 2019, but he continued working during that
time. He was “stripped of his partner status,” cashed out his
equity in the firm to pay his medical bills, and, in May 2019,
underwent surgery.2 Carothers eventually learned a powerful
partner at the firm had told others during Carothers’s medical
leave that Carothers was not returning to the firm and would
instead retire.
In June 2019, Carothers signed an “Agreement of
Employment” pursuant to which he was employed as a non-
equity partner at CDF, and was to be paid $325,000 per year—
which was about 50% less than he had been earning previously.
The employment agreement did not contain an arbitration clause.
Carothers did not receive a year-end bonus in 2019.
In January 2020, CDF informed Carothers he would be
personally charged for time a firm associate billed on the Vista
matter, but the firm later relented and agreed it could not
penalize him twice for the same billing issue. The following
month, CDF reduced Carothers’s compensation again, stating it
2
According to the declaration of CDF partner David
Hagopian, Carothers resigned from the partnership effective
December 31, 2018.
3
was doing so because the firm’s Executive Committee “was not
impressed with his numbers.” Carothers asked CDF to show him
the financials and asked for an accounting of the money CDF had
“‘charged’” him for personnel time on the Vista matter. CDF did
not provide him with the financials or the accounting.
In April 2020, CDF announced it was reducing all attorney
compensation by 20% due to the COVID-19 pandemic. CDF told
Carothers, however, that his compensation would be reduced by
30%. When asked why Carothers’s reduction was greater, the
firm referenced the collections issue with the Vista matter.
In June 2020, Carothers, as co-chair of CDF’s Diversity and
Inclusion Committee, drafted a statement on behalf of the firm
denouncing George Floyd’s murder and sent it to the Executive
Committee. The Executive Committee told the Diversity and
Inclusion Committee and Carothers not to say anything publicly.
Carothers subsequently resigned from the Diversity and
Inclusion Committee. Carothers later learned a white partner at
the firm had posted an article on the firm’s LinkedIn account
stating an investigation into a racist NASCAR incident was a
waste of time.
In August 2020, Carothers received an offer to preside over
a large and significant arbitration through the American
Arbitration Association. The Executive Committee told
Carothers he could not accept the offer and created a policy
justifying their decision. The other name partners at the firm
later suggested Carothers should leave the firm and perform
arbitrations for a living.
Carothers resigned from CDF in late September 2020. On
October 9, 2020, he received an immediate right-to-sue notice
4
from the California Department of Fair Employment and
Housing.
B. Carothers’s Lawsuit Against CDF
In October 2020, Carothers filed a four-count complaint
against CDF. The first cause of action, for constructive discharge
in violation of public policy, alleged CDF engaged in unlawful
retaliation against Carothers for his protected medical leave and
severe health issues, his age, and his complaints about
discrimination and harassment on the basis of race. The
constructive discharge claim further alleged these facts were
substantial motivating reasons for CDF’s decisions to demote
him; to punitively cut his pay and deny him access to firm
financials; to silence his efforts to speak out against racism; and
to disparage him, humiliate him, and push him out of the firm.
The second cause of action alleged a claim under the
California Fair Employment and Housing Act (FEHA) (Gov.
Code, § 12900 et seq.) for retaliating against him for complaining
of discrimination and harassment. The third cause of action for
discrimination on the basis of age, race, and physical disability
alleged CDF discriminated against Carothers on the basis of his
age, medical condition, and race, in violation of FEHA. The
fourth cause of action for failure to prevent discrimination and
retaliation alleged CDF had an affirmative duty under FEHA to
prevent discrimination and retaliation but it failed to take all
reasonable steps to prevent Carothers from being subjected to
discrimination and retaliation, including by doing nothing when
an employee posted on LinkedIn that investigating a potentially
racist incident was a waste of time, by failing to correct
employees’ degrading comments about Carothers’s age and
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medical condition, and by not criticizing an employee who
referred to Carothers as a coward for trying to affirm CDF cared
about diversity and inclusion.
C. The Motion to Compel Arbitration
1. CDF’s motion and the arbitration clause at
issue
CDF filed a motion to compel arbitration contending the
partnership agreement Carothers signed while an equity partner
contained an arbitration clause that required arbitration of all of
Carothers’s claims. In support of its motion, CDF submitted the
declaration of David Hagopian, a partner at, and general counsel
for, CDF. Hagopian averred Carothers signed the partnership
agreement when he first became a partner at the firm and signed
or consented to that same agreement during the following 16
years, including as late as 2018.
Hagopian’s declaration attached the 2018 partnership
agreement, which states Carothers was admitted to the
partnership as a partner in 2002. The agreement represents it
“memorializes the agreements” of the partners. The agreement
describes, among other things, the composition and purpose of
the partnership, the procedures for partnership admission,
withdrawal, and expulsion, ownership percentages and voting,
capital, distributions, income and losses, and the rights and
duties of partners.
The agreement contains a “Governing Law” clause which
provides: “The laws of the State of California shall govern the
validity, enforceability and all other matters pertaining to this
Agreement, the construction of its terms, and the rights and
duties of the Partners.” More importantly for purposes of this
6
appeal, the agreement includes a “Dispute Settlement” provision
that states (with emphasis ours): “If there is any disagreement
between or among the Partnership, the Partners, or any former
Partner, or the estate or any beneficiary or legal representative of
any Partner or former Partner, concerning the interpretation,
application, breach or enforcement of this Agreement, or any
question arising hereunder, which dispute cannot be settled after
reasonable efforts by the disputing parties, then they shall
mutually agree on a third party, who shall be an attorney who is
a member of the California State Bar Association, with at least
15 years[’] experience as a practicing lawyer, and such third
party shall hear the matter and settle and determine any such
dispute. The decision of the third party shall be final and binding
upon the disputing parties in all respects. If the disputing
parties cannot agree on such third party within 30 days, then
upon request of any one of them to the President of the Orange
County Bar Association, such President shall appoint an attorney
as an arbitrator, who shall meet the qualifications set forth
above, and the decision of the individual so appointed shall have
the same binding force and effect as if the disputing parties had
mutually agreed to him or her. All parties to any such dispute
shall share the costs and fees of the third party in equal shares.”
2. Carothers’s opposition
Carothers opposed the motion to compel arbitration on
three principal grounds. He argued that his claims fell outside
the scope of the partnership agreement’s arbitration provision;
that the employment agreement he signed in 2019, which
includes no arbitration clause, in any event superseded the
7
partnership agreement; and that the arbitration clause is
unconscionable and unenforceable.
In support of his opposition, Carothers submitted evidence,
including the 2019 employment agreement he signed. That
agreement specified Carothers was employed as a non-equity
partner and provided it “sets forth the entire offer and agreement
between [Carothers] and the firm and supersedes any and all
prior oral or written agreements, negotiations, discussions, or
understandings between [Carothers] and the firm concerning
[his] employment with the firm.”
3. The trial court’s ruling
The trial court denied CDF’s motion to compel arbitration.
The court was not convinced that the 2019 employment
agreement superseded the previously executed partnership
agreement (it believed the employment agreement would
supersede earlier employment agreements, but the partnership
agreement was not an employment agreement), but the court
found the partnership agreement’s arbitration provision did not
encompass the claims brought in Carothers’s lawsuit. The trial
court reasoned those claims were based on conduct that occurred
during the time he was an employee, not a partner, and the
partnership agreement’s arbitration provision therefore did not
apply.3 The court also emphasized that if CDF, a law firm,
3
CDF had argued its partners (among themselves) were not
subject to anti-discrimination laws. In the trial court’s view, if
anti-discrimination laws did not apply to partners, the
partnership agreement’s arbitration provision could not
encompass the anti-discrimination and retaliation claims brought
by Carothers.
8
wanted to require arbitration of the sort of claims brought by
Carothers, it could have included (but did not include) an
arbitration provision in Carothers’s non-equity partnership
employment agreement to ensure such claims would be covered.
II. DISCUSSION
The trial court reached the correct result. Carothers’s
discrimination claims do not concern
“disagreement[s] . . . concerning the interpretation, application,
breach or enforcement” of the partnership agreement, nor are
they disagreements concerning any question arising under that
agreement. The partnership agreement’s arbitration provision,
by its express terms, applies solely to disagreements that spring
from the terms of the agreement and questions arising under the
agreement. As we proceed to explain, Carothers’s claims are
neither.
“[U]nder both state and federal law, there is a strong policy
favoring arbitration. [Citation.]” (Ramos v. Superior
Court (2018) 28 Cal.App.5th 1042, 1051.) “There is no public
policy, however, that favors the arbitration of disputes the parties
did not agree to arbitrate.” (Aanderud v. Superior Court (2017)
13 Cal.App.5th 880, 890.)
“In considering the language of the . . . agreement’s
arbitration provision, we apply the ordinary rules of contract
interpretation.” (EFund Capital Partners v. Pless (2007) 150
Cal.App.4th 1311, 1321.) “‘The fundamental rules
of contract interpretation are based on the premise that the
interpretation of a contract must give effect to the “mutual
intention” of the parties. “Under statutory rules
of contract interpretation, the mutual intention of the parties at
9
the time the contract is formed governs interpretation. (Civ.
Code, § 1636.) Such intent is to be inferred, if possible, solely
from the written provisions of the contract. (Id., § 1639.) The
‘clear and explicit’ meaning of these provisions, interpreted in
their ‘ordinary and popular sense,’ unless ‘used by the parties in
a technical sense or a special meaning is given to them by usage’
(id., § 1644), controls judicial interpretation. (Id., § 1638.)”’
[Citation.]” (Ameron Internat. Corp. v. Insurance Co. of State of
Pennsylvania (2010) 50 Cal.4th 1370, 1378.)
To reiterate, the arbitration provision at issue in this case
states in pertinent part that “any disagreement between or
among the Partnership, the Partners, or any former Partner, or
the estate or any beneficiary or legal representative of any
Partner or former Partner, concerning the interpretation,
application, breach or enforcement of this Agreement, or any
question arising hereunder” shall be submitted to a mutually
agreed upon third party for binding resolution. The first portion
of this clause renders a discrete category of claims subject to
arbitration: those that concern the interpretation, application,
breach or enforcement of the agreement itself. The second
portion of the clause makes disagreements concerning questions
that arise under the agreement subject to arbitration.
Importantly, both clauses are expressly tethered to the terms of
the partnership agreement and neither includes broader
language that would encompass claims independent of the
agreement or even any claim that “relates to” or “concerns” the
agreement generally.
Turning back to the specifics of Carothers’s complaint, it
alleges CDF constructively discharged him in violation of public
policy and discriminated and retaliated against him based on his
10
health issues, age, and race. His causes of action do not seek
interpretation or application of the partnership agreement. Nor
is there a claim that the agreement was breached or a request to
enforce it. As such, Carothers’s claims obviously do not fall
within the scope of the first clause of the arbitration provision.
We reach the same conclusion with respect to the
arbitration provision’s second clause requiring arbitration of “any
question arising” under the partnership agreement. As a matter
of plain meaning, Carothers’s causes of action do not raise
questions arising under the partnership agreement. The vast
majority of the incidents Carothers alleges as the bases for his
claims took place after Carothers signed the employment
agreement in June 2019 stating he had become a non-equity
partner.4 It perhaps goes without saying, but actions taken while
Carothers and CDF were operating under the terms of the
employment agreement cannot reasonably be said to arise under
the partnership agreement.
The complaint does also include a few allegations that are
apparently based, at least in part, on incidents that took place
4
For example, Carothers’ claim that CDF denied him access
to firm financials is based on the allegation that Carothers asked
CDF for those records in connection with a February 2020
reduction in his salary. His claim that CDF punitively cut his
pay refers to events including the decrease in his salary when he
became a non-equity partner and the February and April 2020
reductions in his compensation. The claim that CDF silenced his
efforts to speak out against racism is based on his allegations
related to the statement he drafted following George Floyd’s
murder in June 2020.
11
before Carothers was a non-equity partner.5 Although these
allegations are accordingly not as obviously excluded from the
arbitration provision on a temporal basis, they still do not
concern questions arising under the agreement. Broadly
speaking, these allegations assert CDF discriminated and
retaliated against Carothers and this discrimination or
retaliation substantially motivated the actions CDF took.
Resolving these claims does not require resolution of any
question arising under the partnership agreement. Indeed, any
employee of the firm, whether a signatory of the partnership
agreement or not, could have brought the sort of claims
Carothers alleges in his complaint.
CDF’s counterarguments concerning the scope of the
arbitration provision are all unconvincing. CDF argues the
claims fall within the scope of the arbitration provision because
they originate from Carothers’s compensation and work as an
equity partner and necessarily involve his relationship to the
firm as either a partner or former partner. The argument, in
other words, seems to be that any dispute between Carothers and
the firm in perpetuity must be arbitrated because Carothers
would always be a “former partner” of the firm and any dispute is
accordingly “rooted in” the partnership agreement because that
5
These include the allegation that Carothers was demoted
and the allegations that CDF made or failed to prevent
derogatory or discriminatory comments about him while he was
an equity partner (the “[t]hat’s what happens when you get old”
comment and the allegation that others were told Carothers was
not returning while he was on medical leave).
12
agreement makes reference to former partners.6 That is doubly
wrong.
First, by the time of the pertinent allegations, Carothers
had a new relationship with CDF governed by that employment
agreement. Claiming that all of his disputes with CDF continue
to be rooted in the partnership agreement ignores this
fundamental change. If CDF had intended the arbitration clause
to apply broadly enough to encompass any claim against the firm
asserted by a “former partner” who then became non-equity
partner employee, it could have easily drafted a provision to say
so.7 Second, we do not believe the partnership agreement’s mere
6
CDF’s argument stems at least in part from its contention
that the arbitration clause in the partnership agreement should
be characterized as “broad” rather than “narrow.” While
characterizing the breadth of an arbitration clause may be a
helpful analytical aid in some circumstances, the issue of whether
a claim is covered by an arbitration clause “is not resolved simply
by determining whether the arbitration clause is narrow or
broad, whether the arbitration clause could encompass tort
claims, or even whether the claims in issue sound in tort, not
contract.” (Rice v. Downs (2016) 248 Cal.App.4th 175, 187.) The
issue is resolved by determining whether the claims asserted in
the complaint are encompassed by the specific terms of the
arbitration clause.
7
The cases upon which CDF relies for its proposition that
Carothers’s claims are rooted in the partnership agreement are
inapposite. None involve a situation where, as here, the parties
ended one continuing relationship and commenced another.
(Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243
Cal.App.4th 1; Vianna v. Doctors’ Management Co. (1994) 27
Cal.App.4th 1186; Merrick v. Writers Guild of America, West, Inc.
13
reference to former partners means any claim by a former
partner against the firm must be arbitrated. Rather, it is only
questions arising under the partnership agreement that must be
arbitrated (e.g., a hypothetical question of whether the
agreement was validly amended) and Carothers’s discrimination
and retaliation claims do not raise such questions despite his
status as a former partner.8
(1982) 130 Cal.App.3d 212; Ramirez-Baker v. Beazer Homes, Inc.
(E.D. Cal. 2008) 636 F.Supp.2d 1008.)
8
CDF, for instance, argues the claim that Carothers was
demoted must be resolved in the context of the provision of the
partnership agreement that enumerates the bases on which an
equity partner can be expelled from the partnership. But
Carothers does not allege any application or breach of the
expulsion provision, or any procedural impropriety. Instead, he
alleges he was demoted for discriminatory and retaliatory
reasons. The factual allegation from which this claim appears to
arise states only that Carothers was stripped of his partner
status.
CDF also contends that Carothers’s payment-related claims
(and, indeed, his overarching claim that he suffered damages) are
dependent on the partnership agreement. But how Carothers’s
earnings under the partnership agreement were determined has
no bearing on whether the amount of money Carothers was paid
pursuant to his later employment agreement was a product of
discrimination or retaliation. (We do not read the complaint to
include withholding the 2018 year-end distribution in Carothers’s
claim that CDF “cut his pay.” Fairly read, the claim encompasses
the allegations related to Carothers’s salary under the
employment agreement and subsequent reductions of that
salary.)
14
DISPOSITION
The order denying CDF’s motion to compel arbitration is
affirmed. Carothers shall recover his costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
BAKER, J.
We concur:
RUBIN, P. J.
KIM, J.
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