MOLECULAR ANALYTICAL Sys. v. CIPHERGEN BIOSys. INC.

• Decision Date: 09 July 2010
• Docket Number: No. H032845.,H032845.
• Citation: 111 Cal.Rptr.3d 876,186 Cal.App.4th 696
• Court: California Court of Appeals
• Parties: MOLECULAR ANALYTICAL SYSTEMS, Plaintiff and Respondent, v. CIPHERGEN BIOSYSTEMS, INC. et al., Defendants and Appellants.

186 Cal.App.4th 696

111 Cal.Rptr.3d 876

MOLECULAR ANALYTICAL SYSTEMS, Plaintiff and Respondent,

v.CIPHERGEN BIOSYSTEMS, INC. et al., Defendants and Appellants.

No. H032845.

Court of Appeal, Sixth District, California.

July 9, 2010.

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Quinn Emanuel Urquhart Oliver & Hedges, Melissa J. Baily, David Ruderman, San Francisco, for Appellants.

Ruby & Schofield, Steven A. Ellenberg, San Jose, for Respondents.

McADAMS, J.

This is an appeal from an order denying the defendants' motion to compel arbitration.Applying the law to the undisputed facts and exercising our independent judgment, we reverse the trial court's ruling.As we explain below, the plaintiff cannot avoid arbitrating its claims against the signatory defendant, because those claims are within the reach of the arbitration clause.And the plaintiff cannot avoid arbitrating its claims against the nonsignatory defendant, because those claims are inextricably bound up with the obligations arising out of the agreement containing the arbitration clause.

BACKGROUND

The parties to this action are Molecular Analytic Systems (plaintiff or MAS) and Ciphergen Biosystems, Inc. and Bio–Rad Laboratories, Inc.(defendants).

The Contracts

Plaintiff is in a contractual relationship with defendant Ciphergen, arising from various contracts, including two that are at issue here: a License Agreement and a Settlement Agreement, both executed in 2003 following settlement of prior litigation.Plaintiff has no express contractual relationship with defendant Bio–Rad.

Both of the agreements at issue here contain arbitration provisions.Section 13.1 of the Settlement Agreement requires arbitration of “any dispute concerning the interpretation or enforcement of the terms of” that agreement, the License Agreement, and other specified contracts.That requirement is qualified by Section 13.4 of the Settlement Agreement, which states: “Except as expressly set forth in Section 13.1, no dispute between the Parties need be submitted for binding arbitration, regardless of whether or not such dispute may arise out of or otherwise relate to” that agreement, the License Agreement, or the other specified contracts.The License Agreement incorporates those arbitration provisions by reference.

Plaintiff's Complaint

In July 2007, plaintiff filed its complaint in this matter.

The complaint includes the following factual allegations: Plaintiff licensed certain technology rights to defendant Ciphergen in exchange for the payment of royalties on total adjusted revenue, all as provided in the License Agreement, which is attached to the complaint as Exhibit A.In 2006, “ Ciphergen in substance assigned its rights under the License Agreement to Bio–Rad.”Ciphergen failed to secure plaintiff's written consent to the assignment, as required by the License Agreement.“Ciphergen received $20 million in cash” from that transaction with Bio–Rad, which “constitutes revenue under the License Agreement.”But Ciphergen failed to pay royalties on that revenue.Plaintiff“has never entered into a commercial license agreement with Bio–Rad.”Nevertheless, in February 2007, plaintiff received a letter from Bio–Rad with a royalty check that did “not appear to be calculated upon Bio–Rad's Adjusted Total Revenue as required by the License Agreement.”

The complaint contains nine causes of action, the first four naming Ciphergen, the next four naming Bio–Rad, and the last one naming both defendants.The four claims against Ciphergen alone are for breach of contract (first cause of action), breach of the implied covenant of good faith and fair dealing (second cause of action), fraud (third cause of action), and accounting (fourth cause of action).As against Bio–Rad, plaintiff asserts claims for interference with contract (fifth cause of action) and conversion (sixth cause of action).Alternatively, plaintiff posits the License Agreement as a contract between plaintiff and Bio–Rad, which Bio–Rad breached, thereby entitling plaintiff to an accounting (seventh and eighth causes of action).Finally, against both defendants, plaintiff seeks a declaration of contractual rights (ninth cause of action).

Defendants' Motion to Compel Arbitration

In November 2007, both defendants moved for an order staying the court action and compelling arbitration.

In their memorandum of points and authorities in support of the motion, defendants sought arbitration of plaintiff's claims against Ciphergen, asserting that they all fall within the scope of the arbitration provision.Defendants further argued that plaintiff's “parallel claims against Bio–Rad must also be submitted to arbitration” based on the doctrine of equitable estoppel.

As evidentiary support for their motion, defendants submitted a copy of the Settlement Agreement, attached as an exhibit to the declaration of Ciphergen employee Eric Fung.

Plaintiff opposed the motion, expressing disagreement with all of defendants' arguments.¹Plaintiff disputed the scope of the arbitration clause, arguing against arbitration of any of its tort or equity claims against either defendant.Additionally, plaintiff cited the lack of “ any arbitration agreement with Bio–Rad” as a basis for refusing arbitration with both defendants, arguing first that plaintiff could not be compelled to arbitrate with Bio–Rad, because Bio–Rad is a nonsignatory, and further that plaintiff should not be compelled to arbitrate with Ciphergen, because of “the potential for conflicting results if MAS is compelled to arbitrate with Ciphergen.”(SeeCode Civ. Proc., § 1281.2, subd. (c).)²

In December 2007, the court conducted a hearing on the motion.At defense counsel's request, the court allowed post-hearing supplemental briefing with submission thereafter.

In February 2008, the court issued its order denying defendants' motion to compel arbitration.The order contains no explanation of the basis for the court's ruling.Defendants thereafter requested a statement of decision, which the court denied as untimely.(See§§ 632,1291.)

Appeal

Defendants brought this appeal.

In their opening brief, defendants make these arguments: all of plaintiff's claims are within the scope of the arbitration agreement; Bio–Rad may enforce the arbitration clause; and section 1281.2(c) does not apply to this case.

In its respondent's brief, plaintiff interposes these counter-arguments: many of its claims are not subject to arbitration; defendants failed to show that Bio–Rad was a party to an arbitration agreement; nothing in the record supports application of the equitable estoppel doctrine; and section 1281.2(c) precludes arbitration.

In reply, defendants dispute all of plaintiff's arguments.

DISCUSSION

To establish the proper framework for our discussion, we first summarize the legal principles that inform our analysis.We then apply them to this case.

I.Legal Principles A. Overview

[1][2][3] “The purpose of arbitration is to have a simple, quick and efficient method

to resolve controversies.”( New Linen Supply v. Eastern Environmental Controls, Inc.(1979)96 Cal.App.3d 810, 818, 158 Cal.Rptr. 251.)For this reason, there is a strong public policy favoring contractual arbitration.( Mercury Ins. Group v. Superior Court(1998)19 Cal.4th 332, 342, 79 Cal.Rptr.2d 308, 965 P.2d 1178( Mercury ).)But that policy “ ‘ “does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration.” ’ ”( Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc.(2005)129 Cal.App.4th 759, 763, 28 Cal.Rptr.3d 752( Westra ).)

B.Compelling Contractual Arbitration1.Statutory Mandate and Exception

Section 1281.2 requires the court to order contractual arbitration in a proper case.It provides: “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists,” unless enumerated exceptions apply.

[4] One relevant exception is contained in section 1281.2(c).“Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement.”( Cronus Investments, Inc. v. Concierge Services(2005)35 Cal.4th 376, 393, 25 Cal.Rptr.3d 540, 107 P.3d 217( Cronus ).)“It is an evenhanded law that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law amongst interrelated parties.”( Ibid.)Under this provision, contractual arbitration “may have to yield if there is an issue of law or fact common to the arbitration and a pending action or proceeding with a third party and there is a possibility of conflicting rulings thereon.”( Mercury, supra,19 Cal.4th at p. 348, 79 Cal.Rptr.2d 308, 965 P.2d 1178.)Application of section1281.2(c) is discretionary with the trial court.( Cronus,at p. 393, 25 Cal.Rptr.3d 540, 107 P.3d 217.)

2.Scope of Arbitration

[5][6]“The scope of arbitration is a matter of agreement between the parties.”( Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell(1999)76 Cal.App.4th 227, 230, 90 Cal.Rptr.2d 195( Larkin ).)“A party can be compelled to arbitrate only those issues it has agreed to arbitrate.”( Ibid.)Thus, “the terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.”( Bono v. David(2007)147 Cal.App.4th 1055, 1063, 54 Cal.Rptr.3d 837.)For that reason, “the...