Sorenson v. The Hwood Group CA2/8 ( 2024 )

Filed 1/10/24 Sorenson v. The Hwood Group CA2/8
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
CHELSEA SORENSON, B324619
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 21STCV41169)
v.
THE HWOOD GROUP, LLC,
Defendant and Appellant.
APPEAL from an order of the Superior Court of
Los Angeles County. Steven J. Kleifield, Judge. Affirmed.
Bremer Whyte Brown & O’Meara, Jeremy S. Johnson,
Benjamin L. Price, and Jonathan P. Cothran for Defendant and
Appellant.
Carpenter & Zuckerman, John P. Kristensen, and Frank
M. Mihalic, Jr., for Plaintiff and Respondent.
_________________________________
INTRODUCTION
In 2017, plaintiff and respondent Chelsea Sorenson began
working for West Beverly Group, LLC, doing business as The
Peppermint Club (The Peppermint Club). As a condition of her
employment with The Peppermint Club, Sorenson signed an
arbitration agreement in which she agreed to arbitrate any
disputes arising out of or related to her employment or the
termination of her employment. Sorenson’s employment with
The Peppermint Club later ended. In 2020, Sorenson began
working for Sunset Hotel F&B, doing business as Harriet’s
Rooftop (Harriet’s Rooftop). Both Harriet’s Rooftop and The
Peppermint Club are subsidiaries of defendant and appellant
The Hwood Group, LLC (Hwood). In this action against Hwood,
Sorenson alleges claims solely arising out of her employment
with Harriet’s Rooftop. The trial court denied Hwood’s motion to
compel arbitration of Sorenson’s claims. We conclude the trial
court did not err in denying the motion to compel arbitration
because Sorenson’s claims do not fall within the express scope of
the arbitration agreement. We accordingly affirm.
FACTUAL AND PROCEDURAL BACKGROUND
I. Arbitration agreement with The Peppermint Club
Hwood owns food and beverage businesses throughout the
southwestern United States. It is the parent company of various
corporate entities that operate restaurants, bars, and nightclubs
in the Los Angeles area. Two of Hwood’s subsidiaries are The
Peppermint Club and Harriet’s Rooftop.
Sorenson began working for The Peppermint Club in 2017.
On September 2, 2017, Sorenson and The Peppermint Club
entered into a “Pre-Dispute Resolution/Arbitration Agreement”
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(Arbitration Agreement). Neither Hwood nor Harriet’s Rooftop is
a signatory to the agreement.
The Arbitration Agreement provides in relevant part: “As a
condition of and in consideration for my employment and/or
continued employment with West Beverly Group, LLC, dba The
Peppermint Club, as set forth in more detail below, I (including
my heirs, administrators, successors and assigns, hereinafter also
referred to as ‘Employee’) waive my right to a jury trial and
agree that disputes relating to my employment, or the
termination of such employment, The Peppermint Club and its
owners, officers, current or former employees, agents, parent,
subsidiaries, predecessors and affiliates, successors or assigns
(hereinafter ‘the Company’) shall be decided by a mutually
agreed-upon Arbitrator in final and binding individual
arbitration in accordance with the Federal Arbitration Act,
9 U.S.C. § l, et seq. Similarly, as set forth in this Agreement, the
Company shall bring claims against me in arbitration rather
than in court. [¶] . . . Any dispute, claim or controversy
including, but not limited to, any dispute, claim or controversy
seeking compensatory and/or punitive damages (‘claims’), arising
out of or relating to Employee’s employment or the cessation of
such employment with the Company, shall be submitted to final
and binding arbitration.”
Due to the COVID-19 pandemic, Hwood experienced a
significant interruption in its business and decided to lay off
nearly its entire affiliated workforce. While the record does not
disclose whether Sorenson was included in these layoffs, her
employment with The Peppermint Club ended at some point in
2020.
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II. Lawsuit against Hwood
Sorenson was hired to work at Harriet’s Rooftop as a server
in August 2020. Because Harriet’s Rooftop serves food, it was
allowed to reopen during the pandemic before many of Hwood’s
other businesses. Sorenson was furloughed in November 2020,
and although Harriet’s Rooftop later rehired other employees, it
did not rehire Sorenson.
On November 8, 2021, Sorenson filed a civil action against
Hwood and unnamed Doe defendants. Her complaint alleged
causes of action for retaliation in violation of Labor Code sections
1102.5 and 98.6, illegal tip pools in violation of Labor Code
section 351, and unfair business practices in violation of Business
and Professions Code section 17200 et seq. The gravamen of the
complaint was that the defendants furloughed Sorenson and
refused to rehire her in retaliation for complaints that she made
to government and law enforcement agencies about legal
violations committed by Harriet’s Rooftop, including illegal tip
pool practices, breaches of COVID-19 rules and regulations, and
unlawful serving of alcohol.
Sorenson did not name The Peppermint Club as a party in
the action, and none of the allegations in the complaint concern
her prior employment with The Peppermint Club.
III. Hwood’s motion to compel arbitration
On April 4, 2022, Hwood filed a motion to compel Sorenson
to arbitrate her claims based on her Arbitration Agreement with
The Peppermint Club. Hwood argued that Sorenson’s claims
were subject to arbitration because they arose out of her
employment with Harriet’s Rooftop, which was an affiliated
company of The Peppermint Club. Hwood also asserted that it
could enforce the Arbitration Agreement as a third party
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beneficiary because it was the parent company of both The
Peppermint Club and Harriet’s Rooftop.
Sorenson opposed the motion to compel arbitration.
She contended that her claims were not subject to arbitration
because they were based solely on her employment with Harriet’s
Rooftop, not The Peppermint Club, and she never agreed to
arbitrate any claims arising from her employment with Harriet’s
Rooftop. She also argued that Hwood was not entitled to enforce
the Arbitration Agreement because it was not a signatory to the
agreement, and none of the exceptions allowing enforcement by a
nonsignatory applied.
The trial court denied the motion on the ground that
Sorenson’s claims against Hwood were not covered by the
Arbitration Agreement. The court explained: “By its terms the
arbitration agreement was a condition of and in consideration for
her employment and/or continued employment with West Beverly
Group, LLC, dba The Peppermint Club. While any claim arising
out of such term of employment . . . was subject to arbitration
with West Beverly Group or any of the other entities, that term of
employment ended at some point in 2020. Plaintiff began a new
term of employment with Sunset Hotel F&B, LLC dba Harriet’s
Rooftop in or about August 2020. Her claim arises out of the
termination of that employment, and not her prior employment
with West Beverly Group.”
The trial court noted that interpretation of the Arbitration
Agreement was “made more difficult by the awkward language of
the first sentence,” which appeared to be missing the word “with”
between “employment” and “The Peppermint Club” (“I . . . agree
that disputes relating to my employment, or the termination of
such employment, The Peppermint Club and its owners, officers,
5
current or former employees, agents, parent, subsidiaries,
predecessors and affiliates . . .”). The court noted, however, that
there may be other reasonable interpretations, and any
uncertainty was to be construed against The Peppermint Club as
the drafter of the agreement.
Hwood timely appealed.
DISCUSSION
On appeal, Hwood contends that the trial court erred in
denying its motion to compel arbitration. Hwood argues that
Sorenson’s claims are covered by the Arbitration Agreement
because they related to her employment with Harriet’s Rooftop,
which is an affiliate of The Peppermint Club. Hwood further
asserts that, because it is the parent company of both The
Peppermint Club and Harriet’s Rooftop, it may enforce the
agreement as a nonsignatory under a third party beneficiary or
alter ego theory. We conclude the trial court properly denied
Hwood’s motion to compel arbitration.
I. Governing law
“ ‘A party to an arbitration agreement may petition the
court to compel other parties to arbitrate a dispute that is
covered by their agreement.’ ” (Cohen v. TNP 2008 Participating
Notes Program, LLC (2019) 31 Cal.App.5th 840, 858.) “Although
there is general policy favoring arbitration, a party cannot be
compelled to accept arbitration of a controversy which they have
not agreed to arbitrate.” (Garcia v. Expert Staffing West (2021)
73 Cal.App.5th 408, 413 (Garcia).) “Whether an agreement to
arbitrate exists is a threshold issue of contract formation and
state contract law.” (Avila v. Southern California Specialty Care,
Inc. (2018) 20 Cal.App.5th 835, 843.) “The party seeking to
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compel arbitration bears the burden of proving the existence of a
valid arbitration agreement.” (Id. at p. 844.)
“ ‘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.’ ” ’ [Citation.] ‘However, both California and
federal courts have recognized limited exceptions to this rule,
allowing nonsignatories to an agreement containing an
arbitration clause to compel arbitration of, or be compelled to
arbitrate, a dispute arising within the scope of that agreement.’ ”
(People v. Maplebear Inc. (2022) 81 Cal.App.5th 923, 931.) In
general, “ ‘ “ ‘ “there are six theories by which a nonsignatory
may be bound to arbitrate: ‘(a) incorporation by reference;
(b) assumption; (c) agency; (d) veil-piercing or alter ego;
(e) estoppel; and (f) third[]party beneficiary.’ ” ’ ” ’ ” (Pacific
Fertility Cases (2022) 85 Cal.App.5th 887, 893.)
In deciding whether the parties agreed to arbitrate a
certain dispute, “ ‘courts generally . . . should apply ordinary
state-law principles that govern the formation of contracts.’ ”
(Fleming v. Oliphant Financial, LLC (2023) 88 Cal.App.5th 13,
21.) “ ‘General contract law principles include that “[t]he basic
goal of contract interpretation is to give effect to the parties’
mutual intent at the time of contracting. [Citations.] . . . ‘The
words of a contract are to be understood in their ordinary and
popular sense.’ [Citations.]” [Citation.] Furthermore, “[t]he
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.” ’ ” (Garcia, supra, 73 Cal.App.5th at
pp. 413–414.) Moreover, where the drafter of the contract “has
prepared an arbitration provision whose application to a
particular dispute is uncertain, ordinary contract principles
7
require that the provision be construed against the drafter’s
interpretation and in favor of the nondrafter’s interpretation.”
(Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 248
[when an arbitration agreement has been prepared entirely by
the employer, any ambiguities must be construed against the
employer and in favor of the employee]; but see Lamps Plus, Inc.
v. Varela (2019) 587 U.S. ___ [139 S.Ct. 1407, 1415] [ambiguous
agreement cannot provide necessary contractual basis for
compelling class arbitration under Federal Arbitration Act].)
“On appeal from an order denying a petition to compel
arbitration, we review the trial court’s factual determinations
under the substantial evidence standard, and we review the legal
issues independently.” (Jarboe v. Hanlees Auto Group (2020)
53 Cal.App.5th 539, 547 (Jarboe).) We independently determine
whether a written document is an enforceable arbitration
agreement “ ‘when the parties do not offer conflicting extrinsic
evidence regarding the document’s meaning.’ ” (Garcia, supra,
73 Cal.App.5th at p. 413.) We also “independently consider the
question of whether and to what extent a nonsignatory may
enforce an arbitration agreement.” (Jarboe, at p. 547; see
Hernandez v. Meridian Managment Services, LLC (2023)
87 Cal.App.5th 1214, 1219.)
II. The trial court did not err in denying Hwood’s
motion to compel arbitration
Applying the well-established principles of contract
interpretation, we conclude Sorenson’s agreement to arbitrate
any disputes with her prior employer, The Peppermint Club, does
not to extend to claims arising out of or related to her subsequent
employment with Harriet’s Rooftop. The trial court therefore
properly denied Hwood’s motion to compel arbitration.
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We begin with the language of the contract. The first
sentence of the Arbitration Agreement provides that Sorenson
was entering into the agreement “[a]s a condition of and in
consideration for [her] employment and/or continued employment
with . . . The Peppermint Club.” It then states that Sorenson
“agree[s] that disputes relating to [her] employment, or the
termination of such employment, The Peppermint Club and its
owners, officers, current or former employees, agents, parent,
subsidiaries, predecessors and affiliates, successors or assigns
(hereinafter ‘the Company’) shall be decided . . . in final and
binding individual arbitration.” In defining when arbitration is
required, the next paragraph provides that “[a]ny dispute, claim
or controversy . . . arising out of or relating to Employee’s
employment or the cessation of such employment with the
Company, shall be submitted to final and binding arbitration.”
The only signatories to the Arbitration Agreement are Sorenson
and The Peppermint Club. Neither Hwood nor Harriet’s Rooftop
is a signatory, and neither entity is expressly named anywhere in
the agreement.
We interpret this language according to general legal
principles, as arbitration-specific rules are not allowed. (Viking
River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct.
1906, 1917–1918].) The generally applicable interpretative rule
that governs here is the prefatory-materials canon: a preamble is
a permissible indicator of meaning. (See Scalia & Garner,
Reading Law: The Interpretation of Legal Texts (2012) p. 217;
see also Newby v. Anderson (1950) 36 Cal.2d 463, 470
[recognizing “the ‘intention’ expressed in the preamble” of a
contract must be given import in interpreting its meaning].)
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The preamble here is “As a condition of and in
consideration for my employment and/or continued employment
with West Beverly Group, LLC, dba The Peppermint Club . . . .”
This preamble has particular significance. It alerts readers to
the scope of this contract. That scope pertains to Sorenson’s
employment with “West Beverly Group, LLC, dba The
Peppermint Club.” The contract governed that employment.
When that employment ended, the contract lapsed. The plain
English interpretation of this contractual text thus shows the
contract began and ended with the beginning and end of
Sorenson’s job at The Peppermint Club. The contract was not in
effect when Sorenson started at Harriet’s Rooftop.
Moreover, considering the Arbitration Agreement as a
whole, the plain language reflects that Sorenson entered into the
agreement as a condition of her employment with The
Peppermint Club, and that she agreed to arbitrate any claims
against The Peppermint Club and its owners, officers, parent,
subsidiaries, affiliates, etc., that arise out of or relate to her
employment, or the termination of such employment, with The
Peppermint Club. In this case, however, none of Sorenson’s
claims against Hwood and the unnamed Doe defendants arise out
of or relate to her prior employment with The Peppermint Club.
Rather, each cause of action in Sorenson’s complaint is based
solely on her subsequent employment with a different company,
Harriet’s Rooftop.
It is undisputed that Sorenson’s employment with The
Peppermint Club ended before she began working for Harriet’s
Rooftop. It is also undisputed that The Peppermint Club is not
named as a party in the action, and that none of the allegations
in Sorenson’s complaint are in any way related to her prior work
10
for The Peppermint Club. In fact, the complaint does not
mention The Peppermint Club at all. Instead, the complaint
alleges that, after Sorenson was hired to work as a server at
Harriet’s Rooftop, Hwood and the unnamed Doe defendants
unlawfully retaliated against her for complaints that she made
about illegal practices committed by Harriet’s Rooftop during her
employment there. Sorenson’s claims are therefore based solely
on alleged unlawful conduct that occurred after the cessation of
her employment with The Peppermint Club and during the time
that she was employed by Harriet’s Rooftop, which is a separate
corporate entity. Because Sorenson’s agreement to arbitrate is
expressly limited to claims that arise out of or relate to her
employment relationship with The Peppermint Club, each cause
of action alleged against Hwood falls outside the scope of the
Arbitration Agreement. (See Garcia, supra, 73 Cal.App.5th at
pp. 413–414; Jarboe, supra, 53 Cal.App.5th at pp. 549–550.)
Garcia, supra, 73 Cal.App.5th 408, is instructive. In that
case, the plaintiff previously worked for two companies, Essential
Seasons, LLC, and Cool-Pak, LLC. (Id. at p. 410.) During the
plaintiff’s employment, a third company, Expert Staffing West,
provided payroll services to Essential Seasons. (Id. at p. 411.)
After that employment ended, the plaintiff applied for work with
Expert Staffing West. (Ibid.) The employment application
included an agreement to arbitrate “ ‘any dispute between
Employee and the Company relating to or arising out of
employment,’ ” and expressly defined “ ‘the Company’ ” as
“ ‘Expert Staffing West and all related entities.’ ” (Id. at p. 411.)
The plaintiff later sued all three companies for wage and hour
violations arising from her employment with Essential Seasons
and Cool-Pak, and the defendants moved to compel arbitration of
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the claims. (Id. at p. 412.) In affirming the order denying the
motion to compel arbitration, the Court of Appeal concluded the
plaintiff’s arbitration agreement with Expert Staffing West did
not apply to claims based on her prior employment with Essential
Seasons and Cool-Pak, despite the business relationship that
existed between the companies. (Id. at p. 414.) As the court
explained, the plaintiff’s “claims arose when she was employed by
a different company (i.e., Essential Seasons/Cool-Pak) before she
applied for a job with Expert Staffing West. No evidence
supports a finding that the parties intended to benefit [the
plaintiff’s] former employers, or that those former employers are
prejudiced by not being able to enforce an arbitration agreement
they never bargained for or executed.” (Ibid.)
Here, Sorenson’s claims arose when she was employed by a
different company, Harriet’s Rooftop, after her employment with
The Peppermint Club ended. Hwood did not offer any evidence to
support a finding that, when Sorenson and The Peppermint Club
entered into the Arbitration Agreement, they intended to benefit
prospective employers that might hire Sorenson at some point in
the future. Further, Hwood has not shown how any such future
employers would be “prejudiced by not being able to enforce an
arbitration agreement they never bargained for or executed.”
(Garcia, supra, 73 Cal.App.5th at p. 414.) If Hwood intended for
Sorenson to arbitrate any claims arising out of her subsequent
employment with Harriet’s Rooftop, then it could have required
her to sign an agreement to that effect when she was hired by
Harriet’s Rooftop. It did not do so.
In arguing that Sorenson’s claims against it are subject to
arbitration, Hwood asserts that the word “with” is missing from
the first sentence of the Arbitration Agreement, which should
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instead read: “I . . . waive my right to a jury trial and agree that
disputes relating to my employment, or the termination of such
employment, with The Peppermint Club and its owners, officers,
current or former employees, agents, parent, subsidiaries,
predecessors and affiliates, successors or assigns (hereinafter ‘the
Company’) shall be decided . . . in final and binding individual
arbitration.” Hwood contends that, once the word “with” is added
to this sentence, it is clear the agreement applies to any claims
that are related to Sorenson’s employment “with” The
Peppermint Club as well as any other persons and entities that
are included within the definition of “the Company.”
As the trial court observed, however, any ambiguities
concerning the scope of the Arbitration Agreement must be
construed against the employer as the drafter of the agreement
and in favor of the nondrafter employee. (See Sandquist v. Lebo
Automotive, Inc., supra, 1 Cal.5th at p. 248.) Moreover, even if
we read the first sentence to include the word “with” between
“employment” and “The Peppermint Club,” we do not interpret
Sorenson’s agreement to arbitrate as extending to claims solely
related to her subsequent employment with Harriet’s Rooftop.
Hwood would have us construe the Arbitration Agreement as
applying to any future employment that Sorenson might have
with any company that is affiliated with The Peppermint Club,
because the term “affiliate” is included in the agreement’s
definition of “the Company.” Yet such an expansive reading
would mean that, at the time Sorenson and The Peppermint Club
entered into the agreement, it was their mutual intent that, even
after their employment relationship ended, they would continue
to preserve one condition of that prior relationship by requiring
Sorenson to arbitrate disputes with any affiliated company that
13
might employ her in the future. Under this reading, Sorenson
would be required to arbitrate any claims that she might have
against future affiliated employers in perpetuity, even where
such claims have nothing to do with her prior employment with
The Peppermint Club. We conclude the plain language of the
Arbitration Agreement is not susceptible of the interpretation
proposed by Hwood.
Citing Ronay Family Limited Partnership v. Tweed (2013)
216 Cal.App.4th 830 (Ronay), Hwood argues that it is entitled to
enforce the Arbitration Agreement as a third party beneficiary
because it is The Peppermint Club’s “parent,” which is one of the
entities listed in the agreement’s definition of “the Company.”
To invoke the third party beneficiary exception, nonsignatories
must show that the arbitration agreement was “ ‘made expressly
for [their] benefit.’ ” (Id. at p. 838.) While “[i]t is ‘not necessary
that the beneficiary be named and identified as an individual’ ” in
the contract, they must establish that they are “ ‘a member of a
class of persons for whose benefit it was made.’ ” (Id. at pp. 838–
839.)
In Ronay, a financial advisor, acting as an agent and
registered representative of a securities broker, opened an
investment account for the plaintiff. (Ronay, supra, 216
Cal.App.4th at p. 834.) The account agreement between the
plaintiff and the broker required arbitration of “ ‘any controversy
arising out of or related to . . . the transactions with [the broker],
its officers, directors, agents, registered representatives and/or
employees.’ ” (Id. at p. 835.) In concluding the financial advisor
could enforce the arbitration clause as a third party beneficiary,
the Court of Appeal explained that “[b]y expressly requiring
arbitration of claims against [the broker’s] agents and registered
14
representatives, the arbitration clause was intended to benefit
nonparties.” (Id. at p. 839.)
In Ronay, however, the claims against the financial advisor
arose out of and were related to the plaintiff’s transactions with
the broker and its agents and registered representatives. (Ronay,
supra, 216 Cal.App.4th at p. 835.) The gravamen of the plaintiff’s
complaint was that the financial advisor misled him about the
risks of certain investments with the broker and induced him to
make unacceptably risky investments, which ultimately failed.
(Ibid.) The subject matter of the plaintiff’s claims against the
third party beneficiary thus fell within the express scope of the
arbitration clause. Here, in contrast, any standing that Hwood
might have to enforce the Arbitration Agreement as a third party
beneficiary would be limited to claims arising out of or related to
Sorenson’s employment with The Peppermint Club. (See Jarboe,
supra, 53 Cal.App.5th at p. 550 [where employment agreement
required arbitration of claims against a named company and “ ‘its
owners, directors, officers,’ ” etc., the individual owners’ standing
to compel arbitration of claims alleged against them was “in the
limited context of their ownership” of the company named in the
agreement].) Yet as discussed, none of Sorenson’s claims against
Hwood are in any way related to her prior employment with The
Peppermint Club. Because Sorenson’s claims are not covered by
the Arbitration Agreement, Hwood cannot compel arbitration of
those claims as a third party beneficiary of the agreement.
Hwood also asserts that it may enforce the Arbitration
Agreement under an alter ego theory because Sorenson alleged in
her complaint that each defendant was “the agent, servant,
employee, representative and/or alter ego” of the other
defendants. Hwood argues that nonsignatories to an arbitration
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agreement are entitled to compel arbitration if sued as the
signatory’s alter ego. Sorenson’s complaint, however, alleges that
Hwood was acting as the alter ego of unnamed Doe defendants,
not The Peppermint Club, and her claims do not fall within the
scope of her agreement to arbitrate disputes related to her
employment with The Peppermint Club. In any event, courts
have recognized that the boilerplate allegations in a complaint
regarding agency, alter ego, or joint employer relationships do not
constitute judicial admissions, and accordingly, are not sufficient
to allow nonsignatories to enforce an arbitration agreement. (See
Garcia, supra, 73 Cal.App.5th at pp. 415–416; Jarboe, supra,
53 Cal.App.5th at p. 554; Barsegian v. Kessler & Kessler (2013)
215 Cal.App.4th 446, 452–453.) On this record, the trial court
did not err in denying Hwood’s motion to compel arbitration.
DISPOSITION
The order denying the motion to compel arbitration is
affirmed. Sorenson shall recover her costs on appeal.
VIRAMONTES, J.
WE CONCUR:
STRATTON, P. J.
WILEY, J.
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