Metalclad v. Ventana Environmental

• Decision Date: 30 June 2003
• Docket Number: No. G029970.,G029970.
• Citation: 109 Cal.App.4th 1705,1 Cal.Rptr.3d 328
• Court: California Court of Appeals Court of Appeals
• Parties: METALCLAD CORPORATION, Plaintiff and Respondent, v. VENTANA ENVIRONMENTAL OGANIZATIONAL PARTNERSHIP et al., Defendants and Appellants.

1 Cal.Rptr.3d 328

109 Cal.App.4th 1705

METALCLAD CORPORATION, Plaintiff and Respondent, v. VENTANA ENVIRONMENTAL OGANIZATIONAL PARTNERSHIP et al., Defendants and Appellants.

No. G029970.

Court of Appeal, Fourth District, Division 3.

June 30, 2003.

Foley & Lardner and Kenneth S. Klein, Los Angeles, for Defendants and Appellants.

Julander, Brown & Bollard, William C. Bollard, Dirk O. Julander, Irvine, and Thomas J. Eastmond for Plaintiff and Respondent.

OPINION

ARONSON, J.

Ventana Environmental Organizational Partnership, L.P. (VEOP), North American Environmental Fund, L.P. (NAEF), and Ventana Global Limited, a holding company allegedly controlling both entities (collectively, Ventana) appeal from an order denying their petition to compel arbitration. Ventana contends the trial court erred in refusing to compel Metalclad to arbitrate under a written contract with Ventana's subsidiary. Ventana is not a signatory to that document, but asserts the doctrine of equitable estoppel precludes Metalclad from raising Ventana's nonsignatory status to oppose arbitration. We agree and therefore reverse, with directions to grant the petition to compel arbitration and stay this litigation.

I FACTS AND PROCEDURAL BACKGROUND

Metalclad is a publicly-held corporation, with its principal place of business in Newport Beach, California. In 1994, Metalclad organized under Mexican law a whollyowned subsidiary named Ecosistemas Nacionales, S.A. de C.V. (Econsa). Econsa functioned as a holding company for the waste disposal and treatment operations Metalclad planned throughout Mexico. As part of its acquisition of a Mexican industrial waste treatment concern, Metalclad hired Javier Guerra Cisneros as Econsa's Director General. Cisneros was to oversee the development and operation of Metalclad's waste facilities, including procurement of the necessary government permits and licenses.

Metalclad hoped to construct and operate a waste disposal site in Aguascalientes, Mexico (the Project). By July 1998, Metalclad believed it had acquired, in the name of Econsa and its subsidiaries, all the permits and licenses needed for the Project. But according to Metalclad's complaint, Cisneros advised Metalclad that because of a prior, successful claim it made under NAFTA (North American Free Trade Agreement), certain "political forces" in Mexico wanted to halt the Project. Those forces, Cisneros intimated, would inevitably frustrate completion of the Project by Metalclad and its subsidiaries, favoring instead any Mexican-owned entity.

Believing it had no option but to sell Econsa, Metalclad, on Cisneros' suggestion, began meeting with Carlos Alberto de Rivas Oest (de Rivas), a Ventana representative. At the first meeting, held at a restaurant in Irvine, California, Metalclad and de Rivas discussed the sale of Econsa and its subsidiaries to Geologic de Mexico, S.A. de C.V. (Geologic), one of Ventana's portfolio companies. Through de Rivas, Ventana proposed Geologic would acquire 100 percent of Econsa's outstanding shares for five million dollars, with a down payment of $125,000 and additional installment payments as the Project passed certain "`development objectives' or construction phases." Due diligence by Ventana, shared with Metalclad, disclosed Geologic needed five million dollars in working capital to meet the development objectives. According to Metalclad's complaint, de Rivas, "on behalf of Ventana, expressly represented and committed to [Metalclad] that Ventana would invest $5,000,000.00 in the Project so that it would have the necessary working capital to meet the agreed upon `development objectives.' Ventana agreed that as these `development objectives' were achieved, Metalclad would receive the balance of the purchase price, or $4,875,000.00. In reliance on these representations and financial commitments by Ventana, Metalclad entered into an oral agreement (the `Agreement') with Ventana to sell the Project to one of Ventana's portfolio companies, Geologic."

Following this oral agreement, Metalclad entered into a written stock purchase agreement with Geologic for the sale of Econsa. The sale price was the asagreed amount of $125,000 up front and $4,875,000 to be paid as the development objectives were met. The written agreement included an arbitration clause: "Arbitration.

Any controversy or claim arising out of or relating to this contract shall be settled by binding arbitration in accordance with the International Arbitration Rules of the American Arbitration Association. The arbitration shall be resolved by a panel of three independent arbitrators. The place of arbitration shall be Mexico City. The languages of the arbitration shall be English and Spanish. The substantive law shall be the laws of Mexico, excluding the conflicts of law rules." (Italics added.)

The written contract also contained a provision allowing Geologic to assign the contract within 90 days of closing. Metalclad understood the provision was included because Ventana "had yet to decide whether Econsa would be held by Geologic or by one of its other portfolio companies." According to Metalclad's complaint, De Rivas "assured Metalclad ... that regardless of which company acquired and held Econsa, Ventana would honor its commitment to provide the $5,000,000.00 needed to develop the Project."

Cisneros conducted the contract negotiations on behalf of Metalclad. After the Metalclad-Geologic contract was signed in July 1999, Metalclad concluded Cisneros had conspired with de Rivas and Ventana to defraud it. In February 2000, more than 90 days after the written contract was executed, Geologic assigned its rights in Econsa, valued by Metalclad at more than $3,000,000 in equipment alone, to a company named Promotora Industrial Galeana, S.A. de C.V. (Promotora) for "less than $50,000," according to Metalclad. Metalclad contends Promotora is a shell corporation set up by Cisneros with no assets other than the Econsa stock. According to Metalclad, Ventana has not met its obligation to invest $5,000,000 working capital in the Project and Promotora is preventing completion of any Project development objectives (and hence payment to Metalclad) by selling off equipment needed to complete the Project.

In November 2000, Metalclad sued Ventana Global Limited, VEOP, NAEF, Geologic, Promotora, de Rivas, Cisneros, and numerous "Does" for breach of contract; fraud by affirmative misrepresentation; fraud by concealment; fraud by promise made without intention to perform; negligent misrepresentation; breach of fiduciary duty; conversion; unfair business practices; and express indemnity.

In January 2001, Metalclad filed an amended complaint, dropping Geologic and its assignee, Promotora, from the list of defendants. Soon thereafter, Promotora sought arbitration in Mexico pursuant to the arbitration clause in the Metalclad-Geologic written agreement. Metalclad characterizes the scope of the American Arbitration Association arbitration in Mexico City as "sole[ly] ... to obtain a determination of the validity of the transfer of Geologic's rights under the Metalclad-Geologic Agreement to Promotora." According to Metalclad, "the heart of [its] argument [in the arbitration] is that the transfer from Geologic to Promotora was accomplished by fraudulent collusion between Mr. [de Rivas] Oest and Metalclad's agent and fiduciary, Mr. Cisneros, who breached his fiduciary duty to Metalclad by arranging Econsa's transfer from Geologic to Promotora, a shell company owned by Mr. Cisneros."

Ventana filed three unsuccessful motions to stay this action pending the outcome of the arbitration. The third motion was denied with prejudice. Retaining a new attorney and pursuing another tack, Ventana petitioned to compel arbitration and dismiss the suit. The trial court denied the petition, but ruled that "all proceedings are stayed pending arbitration in Mexico." Ventana now appeals the denial of its petition to compel arbitration.

II DISCUSSION

A. GENERAL ARBITRATION PRINCIPLES

An immediate appeal lies from the denial of a petition to compel arbitration. (Code Civ. Proc, § 1294, subd. (a); Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 683, 99 Cal.Rptr.2d 809.) Arbitration is a matter of contract (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (First Options); accord Victoria v. Superior Court (1985) 40 Cal.3d 734, 744, 222 Cal. Rptr. 1, 710 P.2d 833) and, under the Federal Arbitration Act (FAA), agreements to arbitrate generally must be in writing. (9 U.S.C. § 2; accord Code Civ. Proc, § 1281.2.) The parties dispute the applicability of the FAA.

B. THE FEDERAL ARBITRATION ACT

The FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements ..."; it "creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate." (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24, 25, 103 S.Ct. 927, 74 L.Ed.2d 765, fn. 32.) Doubts about whether an agreement to arbitrate applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. (Id. at p. 24,103 S.Ct. 927.) In light of the strong federal policy favoring arbitration, the parties' intentions in an arbitration contract "are generously construed as to issues of arbitrability." (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444) (Mitsubishi). Under the FAA, applying the doctrine of equitable estoppel as a matter of "`federal substantive law of arbitrability'" (International Paper v. Schwabedissen Maschinen & Anlagen (4th Cir.2000) 206 F.3d 411, 417, fn. 4 (Schwabedissen)), federal precedent unanimously holds that, "[although arbitration is a contractual right that is generally predicated on an express decision to waive the right to trial in a judicial forum, . .. the lack...