Webcor Construction L.People v. Lendlease (US) Construction, Inc. CA2/4 ( 2020 )

Filed 12/17/20 Webcor Construction L.P. v. Lendlease (US) Construction, Inc. CA2/4
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IN THE COURT OF APPEAL OF THE STATE OF
CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
WEBCOR CONSTRUCTION L.P., B299310
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. 19STCV03357)
v.
LENDLEASE (US)
CONSTRUCTION, INC., et al.,
Defendants and Appellants.
APPEAL from orders of the Superior Court of Los
Angeles County, Richard E. Rico, Judge. Affirmed.
Alston & Bird, John D. Hanover, J. Andrew Howard,
and Joseph S. Sestay for Defendant and Appellant Lendlease
(US) Construction, Inc.
Ralls Gruber & Niece and John Foust; Ken W. Choi
and Daniel A. Cantor for Defendant and Appellant
Oceanwide Plaza LLC.
Gordon Rees Scully Mansukhani, Sandy Kaplan,
Matthew Peng, and Don Willenburg; Rutan & Tucker,
William T. Eliopoulos, Heather N. Herd, and Carrie
MacIntosh for Plaintiff and Respondent Webcor
Construction L.P.
__________________________________________
INTRODUCTION
Appellant Oceanwide Plaza LLC (Oceanwide) hired
appellant Lendlease (US) Construction, Inc. (Lendlease) to
serve as the general contractor on Oceanwide’s development
project. Although the parties had not yet executed a prime
contract, Oceanwide gave Lendlease the go-ahead to begin
work on the project. At the time, the parties had negotiated
a draft agreement (Negotiated Draft), which included an
arbitration provision. Lendlease then hired respondent
Webcor Construction L.P. (Webcor) as a subcontractor, and
the two executed a subcontract that purported to incorporate
the prime contract’s arbitration agreement in disputes
between Webcor and Lendlease that involved Oceanwide’s
“correlative rights and duties.” Lendlease and Oceanwide
later executed a prime contract, which included the same
arbitration provision contained in the Negotiated Draft.
2
The project apparently did not go as planned, and
Webcor filed this action against Lendlease, Oceanwide, and
others, asserting various causes of action.1 Lendlease and
Oceanwide separately moved to compel arbitration under the
subcontract, claiming it incorporated the prime contract’s
arbitration provision. Oceanwide contended it was entitled
to enforce the subcontract as a third-party beneficiary.
Webcor opposed appellants’ motions. It argued the
subcontract incorporated no arbitration provision because
the prime contract had not been executed when the
subcontract was signed and because, according to Webcor,
the subcontract did not reference the Negotiated Draft.
Webcor also maintained that Oceanwide had no standing to
enforce any arbitration agreement in the subcontract. The
trial court denied the motions. The court did not decide
whether the subcontract included a valid arbitration
agreement, but instead concluded that most of Webcor’s
claims did not involve Oceanwide’s correlative rights and
duties. As to the one claim that the court found did involve
Oceanwide’s correlative rights and duties, the court refused
to compel arbitration because of the risk of conflicting
rulings in different forums.
On appeal, Lendlease and Oceanwide contend: (1) the
subcontract incorporated an arbitration agreement; (2)
Oceanwide was entitled to enforce the arbitration agreement
1 The other defendants are not pertinent to the resolution of
this appeal.
3
as a third-party beneficiary; (3) under the arbitration
agreement, whether Webcor’s claims involved Oceanwide’s
correlative rights and duties was a question for the
arbitrator; and (4) alternatively, Webcor’s claims did involve
Oceanwide’s correlative rights and duties.
While we agree that the subcontract incorporated an
arbitration agreement, we conclude that this agreement was
not intended to benefit Oceanwide, and therefore that
Oceanwide had no standing to enforce it. As to Webcor’s
claims against Lendlease, the trial court had discretion to
refuse to compel arbitration to avoid the risk of conflicting
rulings. Accordingly, we affirm.
BACKGROUND
A. The Project, the Limited Notice to Proceed, and the
Negotiated Draft
Oceanwide, the owner and developer of a large,
mixed-use development project in downtown Los Angeles,
hired Lendlease to serve as the project’s general contractor.
Lendlease, in turn, hired Webcor as a concrete subcontractor
to perform all installations of reinforced concrete in the
project.
In February 2015, before the execution of a prime
contract between the parties, Oceanwide and Lendlease
agreed that Lendlease would begin construction, and
Oceanwide issued a “Limited Notice to Proceed,” authorizing
Lendlease to proceed with work while the terms of the prime
contract were being finalized. At the time, Oceanwide and
4
Lendlease had created and tentatively agreed to the
Negotiated Draft.2
The Negotiated Draft included an arbitration
provision: “[A]ny claim, dispute or other matter in question
arising out of or related to the Contract Documents . . . shall
be subject to arbitration which, unless the parties mutually
agree otherwise, shall be administered by the American
Arbitration Association in accordance with its Construction
Industry Arbitration Rules in effect on the date of this
agreement.” The relevant rules of the American Arbitration
Association (AAA) provided, among other things, that the
arbitrator shall have the power to rule on the scope of the
arbitration agreement. (Rule R-9, Construction Industry
Arbitration Rules and Rules and Mediation Procedures, AAA
(Amended July 1, 2015) (AAA Rules).)
B. The Subcontract and the Executed Prime Contract
Lendlease and Webcor began negotiating the terms of a
subcontract in mid-2015. During those negotiations, Webcor
requested that Lendlease provide a copy of the prime
contract, which at that time had not yet been executed. In
early 2016, Lendlease suggested that Webcor review the
Negotiated Draft in Lendlease’s office, but at Webcor’s
2 In declarations filed in the trial court, Oceanwide’s and
Lendlease’s representatives described this draft as
“99%-negotiated” or as a “near-final draft.”
5
insistence, it later agreed to send Webcor a copy of the
document.
On February 25, 2016, Lendlease and Webcor executed
the subcontract. As relevant here, Article 1 of the
subcontract provided: “Subject only to the terms of Article
27 [the dispute-resolution provision], nothing herein shall be
construed to be a binding agreement to arbitrate any dispute
arising hereunder, notwithstanding any provision to the
contrary in the Contract Documents.” In turn, the first
paragraph of Article 27 stated: “In the event of any dispute
between [Webcor] and [Lendlease] arising out of or relating
to this Subcontract, or the breach thereof, which involves the
correlative rights and duties of [Oceanwide], the dispute
shall be decided in accordance with the Contract Documents,
and [Webcor], its suppliers, subcontractors and its
guarantors, surety, or sureties, shall be bound to [Lendlease]
to the same extent that [Lendlease] is bound to [Oceanwide]
by the terms of the Contract Documents . . . .” As to disputes
between Webcor and Lendlease that did not involve
Oceanwide’s correlative rights and duties, the second
paragraph of Article 27 provided that either party could seek
redress in court.
Under Schedule 1 of the subcontract, the “Contract
Documents” included “[t]his [s]ubcontract” and “[t]he
Contract,” among other documents. According to the
subcontract’s cover page, the term “Contract” referred to the
prime contract. Acknowledging that Lendlease and
Oceanwide had not yet executed a prime contract, Paragraph
III.24 of Exhibit B of the subcontract provided: “[Lendlease]
6
agrees that all references in this Subcontract to the Contract
Documents shall mean and refer to the current draft terms
of the Prime Contract between [Lendlease] and [Oceanwide]
(the ‘Negotiated Draft’) until such time as [Lendlease] and
[Oceanwide] execute the Prime Contract, and [Webcor] shall
be bound by all terms and conditions of the Negotiated
Draft.” The same paragraph also purported to bind Webcor
to the terms of the future prime contract, even if they
differed from those of the Negotiated Draft.3 Lendlease and
Webcor later added a rider to the subcontract, providing that
Oceanwide was “an express third party beneficiary of this
Subcontract.”
Oceanwide and Lendlease executed the prime contract
on July 15, 2016, about four and a half months after the
Webcor subcontract was executed. The executed prime
contract included the same arbitration provision contained
in the Negotiated Draft. Acknowledging the execution of the
prime contract, Lendlease and Webcor later executed
Change Order No. 7, which removed all of the subcontract’s
references to the Limited Notice to Proceed and deleted
Paragraph III.24 from Exhibit B.
3 An earlier draft of the subcontract included a duplicate
paragraph at Paragraph 136 of Exhibit B.1 of the agreement, but
the parties deleted it after Webcor objected to being bound to
future terms that had not yet been determined. According to the
deposition testimony of Webcor’s lead negotiator, John
Harrington, he had not noticed the identical provision at
Paragraph III.24 of Exhibit B, which made it into the executed
subcontract.
7
C. Webcor’s Complaint and Appellants’ Motions to
Compel Arbitration
In December 2018, following delays in the project and
disagreements among the parties, Webcor recorded a
mechanic’s lien on the project, and in January 2019, filed
this action against Lendlease, Oceanwide, and others. In its
operative complaint, Webcor asserted claims for: (1) breach
of contract (against Lendlease); (2) foreclosure of mechanic’s
lien (against Lendlease, Oceanwide, and others); (3) violation
of prompt-payment duties (against Lendlease); (4) quantum
meruit (against Lendlease and Oceanwide); and (5)
declaratory relief (against Oceanwide and others).
Oceanwide and Lendlease responded with separate
motions to compel arbitration and stay the proceedings
under Code of Civil Procedure sections 1281.2 and 1281.4,
relying on the subcontract’s dispute-resolution provision.
They argued this provision incorporated the arbitration
provision of either the prime contract or the Negotiated
Draft. Oceanwide, which was not a signatory to the
subcontract, contended it was entitled to enforce the
subcontract’s dispute-resolution provision as a third-party
beneficiary.
Webcor opposed both motions. It argued the
subcontract could not have incorporated the prime contract’s
arbitration provision because that agreement had not yet
been executed when the subcontract was executed. As to the
Negotiated Draft, Webcor asserted the subcontract made no
mention of that document and thus could not have
8
incorporated its arbitration provision. In the alternative,
Webcor claimed that Oceanwide was not a third-party
beneficiary of the subcontract’s dispute-resolution provision
and thus had no standing to enforce any arbitration
agreement it contained. It contended that granting only
Lendlease’s motion to compel arbitration carried a risk of
conflicting rulings in different forums.
D. The Trial Court’s Rulings
In July 2019, following a hearing on appellants’
motions to compel arbitration, the trial court denied both
motions in separate orders. The court did not decide
whether the subcontract contained a valid arbitration
agreement or whether Oceanwide had standing to invoke
any such agreement. Rather, it ruled that even assuming
the subcontract contained an enforceable arbitration
agreement, all but one of Webcor’s claims were outside its
scope because they did not involve Oceanwide’s correlative
rights and duties. As to the one claim that according to the
court did involve Oceanwide’s correlative rights and duties
(quantum meruit), the court exercised its discretion under
Code of Civil Procedure section 1281.2, subdivision (c)
(Section 1281.2(c)), to deny arbitration so as to avoid the risk
of conflicting rulings in different forums. Lendlease and
Oceanwide timely appealed.
9
DISCUSSION
We review de novo the trial court’s resolution of legal
questions underlying its ruling on a motion to compel
arbitration. (Avery v. Integrated Healthcare Holdings, Inc.
(2013) 218 Cal.App.4th 50, 60.) The court’s denial of
arbitration pursuant to Section 1281.2(c), based on the risk
of conflicting rulings, is reviewed for abuse of discretion.
(Bunker Hill Park Ltd. v. U.S. Bank National Assn. (2014)
231 Cal.App.4th 1315, 1324.)
It is undisputed that the substantive rules of the
Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) govern
any arbitration agreement in the subcontract. The policy
underlying the FAA “‘“is to ensure that arbitration
agreements will be enforced in accordance with their
terms.”’” (State Farm General Ins. Co. v. Watts Regulator
Co. (2017) 17 Cal.App.5th 1093, 1098, italics omitted.)
“Arbitration is ‘a matter of contract’ and the policy favoring
arbitration does not displace the need for a voluntary
agreement to arbitrate. [Citation.] ‘Although the FAA
preempts any state law that stands as an obstacle to its
objective of enforcing arbitration agreements according to
their terms, . . . we apply general California contract law to
determine whether the parties formed a valid agreement to
arbitrate their dispute.’” (Ibid.)
Challenging the trial court’s denial of their motions to
compel arbitration, Lendlease and Oceanwide argue: (1) the
subcontract initially incorporated the Negotiated Draft’s
arbitration provision and later incorporated the executed
prime contract’s (identical) arbitration provision; (2) while
10
Oceanwide was not a signatory to the subcontract, it was
entitled to enforce its dispute-resolution provision as a
third-party beneficiary; (3) through the Negotiated Draft’s
incorporation of the AAA Rules, the parties delegated
questions about the scope of the arbitration agreement to the
arbitrator, and thus it was not for the trial court to decide
whether Webcor’s claims involved Oceanwide’s “correlative
rights and duties”; and (4) alternatively, Webcor’s claims did
involve Oceanwide’s correlative rights and duties.
As we briefly discuss below, we agree that Article 27 of
the subcontract, the dispute-resolution provision,
incorporated the prime contract’s arbitration provision.
However, we conclude that Oceanwide had no standing to
enforce Article 27, and thus that the trial court acted within
its discretion in denying Lendlease’s motion to compel
arbitration to avoid the risk of conflicting rulings.4 We
therefore do not reach appellants’ final contentions.
4 Although the trial court’s ruling rested on its analysis of
the scope of the arbitration agreement, we are not bound by the
court’s reasoning. “[I]t is a settled appellate principle that if a
judgment is correct on any theory, the appellate court will affirm
it regardless of the trial court’s reasoning.” (Young v. Fish &
Game Com. (2018) 24 Cal.App.5th 1178, 1192-1193.)
11
A. The Subcontract Incorporated the Arbitration
Provisions of the Negotiated Draft and the Executed
Prime Contract
We agree with Lendlease and Oceanwide that the
subcontract contained an arbitration agreement, initially
through its reference to the Negotiated Draft’s arbitration
provision, and later through its reference to the identical
provision in the executed prime contract. Generally,
“contract interpretation is an issue of law, which we review
de novo . . . .” (DFS Group, L.P. v. County of San Mateo
(2019) 31 Cal.App.5th 1059, 1079.) “‘The fundamental goal
of contractual interpretation is to give effect to the mutual
intention of the parties.’ [Citations.] ‘Such intent is to be
inferred, if possible, solely from the written provisions of the
contract.’ [Citations.] ‘If contractual language is clear and
explicit, it governs.’” (State of California v. Continental Ins.
Co. (2012) 55 Cal.4th 186, 195.) “The whole of a contract is
to be taken together, so as to give effect to every part, if
reasonably practicable, each clause helping to interpret the
other.” (Civ. Code, § 1641.)
“‘“It is, of course, the law that the parties may
incorporate by reference into their contract the terms of
some other document.”’” (Shaw v. Regents of University of
California (1997) 58 Cal.App.4th 44, 54.) Under Article 27 of
the subcontract (the dispute-resolution provision), any
dispute between Webcor and Lendlease that relates to that
agreement and involves Oceanwide’s correlative rights and
duties “shall be decided in accordance with the Contract
12
Documents . . . .” Under Schedule 1 of the subcontract, the
“Contract Documents” included “[t]he Contract,” a term that
according to the subcontract’s cover page referred to the
prime contract. And while, as Webcor points out, Lendlease
and Oceanwide had not yet executed the prime contract
when the subcontract was executed, the subcontract’s
Exhibit B, Paragraph III.24, acknowledged this fact and
provided that all references to the Contract Documents
“shall mean and refer to [the Negotiated Draft]” until
Lendlease and Oceanwide execute the prime contract.5 It is
therefore clear that the subcontract’s dispute-resolution
provision referenced the Negotiated Draft. In turn, the
Negotiated Draft included an arbitration provision: “[A]ny
claim, dispute or other matter in question arising out of or
related to the Contract Documents . . . shall be subject to
arbitration . . . .”
After Oceanwide and Lendlease executed the prime
contract, Lendlease and Webcor executed Change Order No.
7, deleting Exhibit B, Paragraph III.24, which had
5 Oceanwide suggests the inclusion of this paragraph was
potentially a mutual mistake, evidenced by the parties’ deletion
of the identical Paragraph 136 of Exhibit B.1. Initially, Webcor
itself does not make this argument. Moreover, we note that
Webcor and Lendlease deleted the latter after Webcor objected to
a clause purporting to bind Webcor to the uncertain terms of a
future prime contract. Webcor never objected to the
incorporation of the Negotiated Draft. Thus, the extrinsic
evidence concerning the parties’ negotiations is consistent with
the language of the subcontract.
13
substituted references to the Negotiated Draft for the
subcontract’s references to the prime contract. With this
change, the revised subcontract’s dispute-resolution
provision now incorporated the executed prime contract
itself, which included the same arbitration provision
contained in the Negotiated Draft. At all times, then, the
subcontract incorporated the arbitration provision of either
the Negotiated Draft or the executed prime contract.
B. Oceanwide Had No Standing to Enforce the
Subcontract’s Dispute-Resolution Provision, and the
Trial Court Had Discretion to Deny Lendlease’s
Motion to Compel Arbitration as Well
1. Governing Principles
“Because arbitration is a matter of contract, generally
‘“one must be a party to an arbitration agreement to be
bound by it or invoke it.”’” (DMS Services, LLC v. Superior
Court (2012) 205 Cal.App.4th 1346, 1352,1353 (DMS
Services).) However, courts have recognized limited
exceptions to this rule, allowing nonsignatories to an
agreement containing an arbitration provision to compel
arbitration of a dispute within the scope of that agreement.
(Ibid.) Under one of those exceptions, invoked by
Oceanwide, a nonsignatory may enforce an arbitration
agreement if the nonsignatory is a third-party beneficiary of
the agreement. (County of Contra Costa v. Kaiser
Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237,
242.)
14
“A third party beneficiary may enforce a contract
expressly made for his benefit.” (Murphy v. Allstate Ins. Co.
(1976) 17 Cal.3d 937, 943 (Murphy), citing Civ. Code,
§ 1559.) Status as a third-party beneficiary of a contract,
however, does not grant a person the power to enforce any
and every provision of the contract; rather, a third-party
beneficiary “may enforce those promises directly made for
him.” (Murphy, supra, at 943; accord, Sessions Payroll
Management, Inc. v. Noble Construction Co. (2000) 84
Cal.App.4th 671, 680 (Sessions), quoting Murphy; Clark v.
California Ins. Guarantee Assn. (2011) 200 Cal.App.4th 391,
398 [“as a third party beneficiary, the judgment creditor can
only enforce those promises made directly for his benefit”],
citing Murphy, at 943.)
In Murphy, a judgment creditor sued the judgment
debtor’s insurer for breach of the duty to settle, which is
included in the implied covenant of good faith and fair
dealing. (Murphy, supra, 17 Cal.3d at 939-941.) Insurance
Code section 11580, subdivision (b)(2), made the judgment
creditor a third-party beneficiary of the insurance contract
between the defendant and the insurer, and the implied
covenant of good faith and fair dealing was a term of the
contract for purposes of that statutory provision. (Murphy,
at 942-943.) Our Supreme Court held, however, that despite
her third-party beneficiary status, the judgment creditor had
no standing to invoke the insurer’s duty to settle because
that duty was intended to benefit the insured, rather than a
third-party claimant. (Id. at 943-944.) The Murphy court
explained: “A third party should not be permitted to enforce
15
covenants made not for his benefit, but rather for others. He
is not a contracting party; his right to performance is
predicated on the contracting parties’ intent to benefit him.
[Citations.] As to any provision made not for his benefit but
for the benefit of the contracting parties or for other third
parties, he becomes an intermeddler. Permitting a third
party to enforce a covenant made solely to benefit others
would lead to the anomaly of granting him a bonus after his
receiving all intended benefit.” (Id. at 944.)
Courts have since applied Murphy’s teachings beyond
the context of insurance policies and the implied covenant of
good faith and fair dealing. In Sessions, the Court of Appeal
applied these principles to reverse an award of attorney fees.
(Sessions, supra, 84 Cal.App.4th at 680-681.) There, a
plaintiff sued the defendant, a general contractor, for the
breach of a contract between the defendant and a
subcontractor. The plaintiff, who provided payroll services
to the subcontractor, claimed it was a third-party beneficiary
of the contract. (Id. at 675-677.) The contract provided that
“‘[i]n the event it becomes necessary for either party to
enforce the provisions of this Agreement,’” the prevailing
party would be entitled to attorney fees. (Id. at 676, italics
omitted.) The trial court sustained a demurrer without
leave to amend and awarded the defendant attorney fees
based on the reciprocity principles of Civil Code section 1717
16
and the attorney fee provision in the contract.6 (Id. at 676-
677.)
On appeal, the plaintiff argued it would not have been
entitled to attorney fees had it prevailed on its claim, and
thus that the defendant was likewise not entitled to fees.
The Court of Appeal agreed. (Sessions, supra, 84
Cal.App.4th at 680-681.) Citing Murphy’s explanation of the
limits of third-party beneficiaries’ ability to enforce
contractual provisions, the court concluded that even if the
plaintiff had prevailed on its third-party beneficiary claim,
the attorney fee provision’s reference to “either party”
excluded the plaintiff, and thus that the signatories had not
intended it to benefit the plaintiff. (Sessions, at 680-681,
italics omitted.)
Similarly, and as particularly relevant here, in Fuentes
v. TMCSF, Inc. (2018) 26 Cal.App.5th 541 (Fuentes), the
court applied Murphy to conclude that a plaintiff had no
standing to enforce an arbitration provision as a third-party
beneficiary. (Fuentes, supra, 26 Cal.App.5th at 551-552.)
6 “Civil Code section 1717 makes an otherwise unilateral
right [to attorney fees] reciprocal when a defendant sued on a
contract with a provision awarding attorney fees to the prevailing
party defends by successfully arguing the inapplicability,
invalidity, unenforceability, or nonexistence of that contract.”
(Sessions, supra, 84 Cal.App.4th at 678, italics omitted.) Because
these arguments are inconsistent with a claim for attorney fees
under the same contract, a prevailing defendant would not be
able to obtain attorney fees without the operation of this
statutory provision. (Ibid.)
17
The plaintiff purchased a motorcycle from a dealership and
executed a separate financing agreement with a third-party
lender. (Id. at 545.) While the purchase agreement
contained no arbitration provision (ibid.), the financing
agreement provided for arbitration of claims between the
plaintiff and the lender or any of its “‘successors, assigns,
parents, subsidiaries, or affiliates and/or any employees,
officers, directors, agents, of the aforementioned . . . ’” (id. at
546). After the plaintiff brought a putative class action
against the dealership, the latter sought to compel
arbitration under the financing agreement, asserting it was
a third-party beneficiary of that contract. (Id. at 546-547.)
The Fuentes court assumed for the sake of the
argument that the dealership was a third-party beneficiary
of the financing agreement. (Fuentes, supra, 26 Cal.App.5th
at 552.) However, based on the relevant language from
Murphy, the court concluded the dealership could not invoke
that agreement’s arbitration provision. (Fuentes, supra, at
551-552.) It noted that the arbitration clause had “its own
list of intended third party beneficiaries,” which did not
include the dealership. (Id. at 552.) The Court of Appeal
thus concluded, “the contract affirmatively disproves any
intent that the arbitration clause should benefit [the
dealership].” (Ibid.) Under this authority, the pertinent
question is not merely whether Oceanwide was a third-party
18
beneficiary of the subcontract generally, but whether it was
an intended beneficiary of Article 27.7
As a general matter, it is for the court to decide
whether a nonsignatory may invoke an arbitration
agreement.8 (See Benaroya v. Willis (2018) 23 Cal.App.5th
462, 469 [“‘an arbitrator has no power to determine the
rights and obligations of one who is not a party to the
arbitration agreement’”]; Knight et al., Cal. Practice Guide:
Alternative Dispute Resolution (The Rutter Group 2020)
¶ 5:287 [“a trial court must first determine the status of a
person who demands arbitration under a contract that he or
7 Oceanwide suggests this rule subjects arbitration
provisions to “special scrutiny . . . beyond that which is applied to
the contract as a whole,” and is therefore preempted by the FAA,
which “‘precludes states from “singling out arbitration provisions
for suspect status . . . .”’” (Quoting Rosenthal v. Great Western
Fin. Securities Corp. (1996) 14 Cal.4th 394, 410.) Not so. The
rule that third parties may enforce only those promises intended
to benefit them is generally applicable, and as discussed, has
been applied in such contexts as attorney fees (see Sessions,
supra, 84 Cal.App.4th at 680-681) and the implied covenant of
good faith and fair dealing (see Murphy, supra, 17 Cal.3d at
943-944), as well as arbitration. Oceanwide offers nothing to
show that this rule subjects arbitration provisions to special
scrutiny.
8 Oceanwide does not contend that either the subcontract or
the prime contract empowered the arbitrator to decide whether
Oceanwide was a third-party beneficiary entitled to compel
arbitration. It has therefore forfeited any contention in this
regard. (See Browne v. County of Tehama (2013) 213 Cal.App.4th
704, 726 [failure to raise contention in opening brief constitutes
forfeiture].)
19
she did not sign”].) This determination involves a question
of law that we review de novo. (DMS Services, supra, 205
Cal.App.4th at 1352.) “The party claiming to be a third
party beneficiary bears the burden of proving that the
contracting parties actually promised the performance which
the third party beneficiary seeks.” (Loduca v. Polyzos (2007)
153 Cal.App.4th 334, 341.)
2. Analysis
We conclude that Oceanwide was not entitled to invoke
Article 27 as a third-party beneficiary. While Oceanwide
was undoubtedly a third-party beneficiary of the subcontract
under the rider to that agreement, Oceanwide may not
enforce Article 27 unless this provision was intended to
benefit Oceanwide. (See Murphy, supra, 17 Cal.3d at 943;
Sessions, supra, 84 Cal.App.4th at 680-681.)
The first paragraph of Article 27 provided: “In the
event of any dispute between [Webcor] and [Lendlease] . . .
which involves the correlative rights and duties of
[Oceanwide], the dispute shall be decided in accordance with
the Contract Documents, and [Webcor] . . . shall be bound to
[Lendlease] to the same extent that [Lendlease] is bound to
[Oceanwide] by the terms of the Contract Documents. . . .”
The plain terms of Article 27 limit arbitration to claims
between Webcor and Lendlease.9
9 We consider the breadth of the arbitration agreement
under Article 27 only to the extent it informs our assessment of
(Fn. is continued on the next page.)
20
Only certain disputes “between [Webcor] and
[Lendlease]” must be submitted to arbitration under this
provision, which made no reference to disputes between
Webcor and Oceanwide. Nothing in the nature of an
arbitration provision or the subcontract required such
restrictive language. Indeed, the Negotiated Draft’s
arbitration provision stated simply, “[A]ny claim, dispute or
other matter in question arising out of or related to the
Contract Documents . . . shall be subject to arbitration . . . .”
Rather than simply incorporate this provision, Article 27
included the additional limiting language. The subcontract
provided in Article 1 that the parties’ arbitration obligations
would be determined by Article 27 alone, “notwithstanding
any provision to the contrary in the Contract Documents,”
demonstrating a recognition that Article 27’s arbitration
mandate was narrower. Article 27’s reference to disputes
between Webcor and Lendlease establishes an intent to limit
arbitration under the subcontract to those parties. (See
Sessions, supra, 84 Cal.App.4th at 680-681 [attorney fee
provision’s reference to “either party” excluded nonsignatory
plaintiff, even if plaintiff had been third-party beneficiary
(italics omitted)]; Rath v. Managed Health Network, Inc.
(1992) 123 Idaho 30, 31 [third-party beneficiary not included
in provision requiring arbitration of controversies “‘between
the parties’” (italics omitted)]; 9 Corbin on Contracts (2020)
Oceanwide’s standing to enforce it. As noted, we do not decide
whether it would have been for the trial court or the arbitrator to
determine the agreement’s scope as such.
21
§ 46.9 [discussing provision limiting arbitration to “‘[a]ny
dispute between the Parties’” and stating, “If the term ‘party’
clearly excludes beneficiaries, such an exclusion must be
enforced to honor the overriding policy that the contract
terms define and limit the rights of the beneficiary”].)
Oceanwide does not address this limiting language in
its briefs, even after Webcor brings it to the forefront in its
own brief; rather, Oceanwide simply asserts, repeatedly,
that under the first paragraph of Article 27, “any dispute”
that involves its correlative rights and duties is subject to
arbitration. We, however, may not ignore this language, and
instead must give it effect. (See Advanced Network, Inc. v.
Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1063 [“‘We
must give significance to every word of a contract, when
possible, and avoid an interpretation that renders a word
surplusage’”].)
Oceanwide emphasizes that the first paragraph of
Article 27 referenced Oceanwide twice. Yet the first
reference to Oceanwide is an additional limitation of the
duty to arbitrate. To be subject to arbitration under Article
27, a matter must both (a) be a dispute between Webcor and
Lendlease and (b) involve Oceanwide’s correlative rights and
duties. This limiting language cannot expand the
signatories’ arbitration obligations. Similarly, the second
reference to Oceanwide -- providing that Webcor would be
“bound to [Lendlease]” to the same extent Lendlease is
bound to Oceanwide by the terms of the Contract Document
-- does not extend Webcor’s duty to arbitrate to claims
against Oceanwide. Again, rather than say that Webcor
22
would “be bound to Lendlease and Oceanwide” or simply
that it would “be bound by the terms of the Contract
Documents,” this provision spoke in terms of Webcor’s duties
to Lendlease alone. The reference to the extent Lendlease is
bound to Oceanwide served merely as a measuring stick to
determine the scope of Webcor’s duties toward Lendlease.
By providing for arbitration of certain disputes
between Webcor and Lendlease, Article 27 indicates an
intent to benefit Lendlease, but not Oceanwide. As in
Sessions and Fuentes, the exclusion of the third-party
beneficiary from the scope of the provision negates an intent
to benefit it. (See Sessions, supra, 84 Cal.App.4th at 680-681
[attorney fee provision that was limited to signatories was
not intended to benefit claimed third-party beneficiary];
Fuentes, supra, 26 Cal.App.5th at 551-552 [arbitration
provision that was limited to signatories and certain third
parties not including defendant was not intended to benefit
defendant].) Oceanwide argues Fuentes is distinguishable
because unlike Article 27, the arbitration provision there
had “‘its own list of intended third party beneficiaries,’”
which did not include the defendant dealership. (Fuentes, at
552.) But just as the provision in Fuentes limited its
application to the specified parties -- the lender and its
“successors, assigns, parents, subsidiaries,” etc. (id. at 546) --
the first paragraph of Article 27 limited its application to the
specified parties, Webcor and Lendlease. Additionally,
Oceanwide does not attempt to distinguish Sessions, even
after Webcor relies on it in its brief.
23
We observe that Article 27’s different treatment of
disputes between Webcor and Lendlease according to
whether they involve Oceanwide’s rights and duties made
sense for Lendlease. Lendlease and Webcor may not have
wanted to arbitrate claims between the two of them. But
without the first paragraph of Article 27, Lendlease would
have faced a risk of arbitrating disputes with Oceanwide (as
it was required to do under the prime contract) while
litigating parallel disputes with Webcor in court, leading to
duplicative litigation efforts, additional expense, and a risk
of conflicting rulings.10 Oceanwide offers no explanation how
a provision requiring arbitration between Webcor and
Lendlease alone was intended to benefit Oceanwide.
Because Article 27’s arbitration provision was not intended
to benefit Oceanwide, the latter had no standing to enforce
it.11 (See Murphy, supra, 17 Cal.3d at 943-944; Sessions,
10 Under at least some scenarios, Lendlease could implore the
trial court to deny arbitration with Oceanwide under Section
1281.2(c). But requiring Webcor to arbitrate relevant claims
provided more certainty, as it did not require Lendlease to
depend on a favorable exercise of the court’s discretion.
11 For the first time at oral argument, Oceanwide argued that
Article 27 could require Webcor to arbitrate claims against
Oceanwide because the AAA Rules, which Article 27
incorporated, allowed for the joinder of parties to an ongoing
arbitration proceeding. Initially, we note that Oceanwide has
forfeited this contention by failing to raise it in its briefs. (See
Haight Ashbury Free Clinics, Inc. v. Happening House Ventures
(2010) 184 Cal.App.4th 1539, 1554, fn. 9 (Haight Ashbury) [“We
do not consider arguments that are raised for the first time at
(Fn. is continued on the next page.)
24
supra, 84 Cal.App.4th at 676; Fuentes, supra, 26 Cal.App.5th
at 551-552.)
Oceanwide cites Macaulay v. Norlander (1992) 12
Cal.App.4th 1 for the proposition that a third-party
beneficiary’s inclusion in an arbitration provision may be
inferred from the “nature of the agreement as a whole.” We
are unpersuaded. Initially, the amorphous concept of “the
nature of the agreement” cannot override the clear language
of the arbitration agreement. Macaulay itself stated that a
court must “scrutinize the language [of the contract] to
determine whether it selectively includes or excludes the
[third party] from the arbitration provision.” (Id. at 8.)
There, the contract expressly included the relevant third
party in the arbitration provision. (Id. at 7 [relying on
agreement’s statement that “‘the terms and conditions
hereof, including the arbitration provision . . ., shall be
applicable to all matters between [the third party] and
you’”].) Moreover, nothing in the nature of a construction
subcontract requires that the owner/developer be included in
an arbitration provision. (Cf. 9 Corbin on Contracts, supra,
§ 45.3 [addressing third-party status of owners in
construction subcontracts, generally; “the case law generally
supports the view espoused in this treatise that the owner is
typically not an intended beneficiary of such contracts”].) In
oral argument”].) Moreover, AAA Rule R-7, the rule Oceanwide
referenced, addresses the procedures governing the joinder of
parties. It does not provide an independent basis to compel
arbitration outside the scope of any arbitration agreement.
25
short, Oceanwide had no standing to compel arbitration
under the subcontract as a third-party beneficiary.
Under Code of Civil Procedure section 1281.2, a trial
court has discretion to refuse to compel arbitration if “[a]
party to the arbitration agreement is also a party to a
pending court action . . . with a third party, arising out of the
same transaction or series of related transactions and there
is a possibility of conflicting rulings on a common issue of
law or fact.” (Section 1281.2(c); see also Daniels v. Sunrise
Senior Living, Inc. (2013) 212 Cal.App.4th 674, 680
[“whether to stay or deny arbitration based on the possibility
of conflicting rulings on common questions of law or fact is
reviewed for an abuse of discretion”].) While the trial court
employed a different analysis than we have, it ultimately
declined to order arbitration based on the risk of conflicting
rulings in separate proceedings.12 Appellants do not
12 It is not the case that parties to arbitration agreements
may avoid enforcement whenever they include nonsignatories in
the litigation. The trial court has discretion to compel
arbitration, even under the circumstances outlined in Section
1281.2(c). Moreover, under the equitable estoppel doctrine,
nonsignatories may be able to compel a signatory to arbitrate
when, inter alia, the signatory “has signed an agreement to
arbitrate but attempts to avoid arbitration by suing nonsignatory
defendants for claims that are ‘“based on the same facts and are
inherently inseparable”’ from arbitrable claims against signatory
defendants.” (Metalclad Corp. v. Ventana Environmental
Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713.)
Oceanwide did not invoke this doctrine below and does not argue
it on appeal.
26
challenge the court’s authority to do so if Oceanwide could
not compel Webcor to arbitrate its claims against
Oceanwide.13 Accordingly, we find no reversible error in the
court’s orders.
13 For the first time at oral argument, appellants raised three
contentions concerning the court’s authority under Section
1281.2(c) to refuse to compel arbitration if Oceanwide could not
enforce Article 27 in court: (1) Lendlease suggested there could
be no risk of conflicting rulings because the arbitrator could join
Oceanwide as a party to arbitration between Webcor and
Lendlease under the AAA Rules; (2) Oceanwide contended there
could be no risk of conflicting rulings even if only Webcor and
Lendlease alone proceed to arbitration because other than the
quantum meruit claim, Webcor’s claims against Oceanwide
depend on Webcor’s contractual claim against Lendlease, and
Webcor could not proceed to final adjudication on its quantum
meruit claim without first abandoning its contractual claim; and
(3) Oceanwide argued Section 1281.2(c) is preempted by the FAA.
Appellants have forfeited these claims by failing to raise them in
their briefs. (See Haight Ashbury, supra, 184 Cal.App.4th at
1554, fn. 9.) Additionally, as to Lendlease’s reference to the AAA
Rules regarding joinder, we again note that those rules provide
no independent basis for arbitration between parties who did not
agree to arbitrate. And as to Oceanwide’s preemption argument,
we observe that California courts have held that the FAA does
not preempt Section 1281.2(c) unless the arbitration agreement
expressly adopts the FAA’s procedural rules. (See Avila v.
Southern California Specialty Care, Inc. (2018) 20 Cal.App.5th
835, 840-841 [no preemption of Section 1281.2(c) unless FAA’s
procedural rules apply, and those rules do not apply in state
court, absent express provision in arbitration agreement]; Los
Angeles Unified School Dist. v. Safety National Casualty Corp.
(2017) 13 Cal.App.5th 471, 479-482 [same].) Oceanwide has not
contended that Article 27 expressly adopted the FAA’s procedural
(Fn. is continued on the next page.)
27
DISPOSITION
The trial court’s orders denying appellants’ motions to
compel arbitration are affirmed. Webcor is awarded its costs
on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL
REPORTS
MANELLA, P. J.
We concur:
WILLHITE, J.
COLLINS, J.
rules, whether directly or by reference to the Contract
Documents.
28