Whaley v. Sony Computer Entertainment America, Inc., D043188 (CA 8/5/2004)

• Decision Date: 05 August 2004
• Docket Number: D043188
• Parties: CHRISTOPHER WHALEY et al., Plaintiffs and Respondents, v. SONY COMPUTER ENTERTAINMENT AMERICA, INC. et al., Defendants and Appellants.
• Court: California Supreme Court

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CHRISTOPHER WHALEY et al., Plaintiffs and Respondents, v. SONY COMPUTER ENTERTAINMENT AMERICA, INC. et al., Defendants and Appellants.

D043188

Court of Appeals of California, Fourth District, Division One

Filed August 5, 2004

Appeal from an order of the Superior Court of San Diego County, No. GIN031654, Michael B. Orfield, Judge. Affirmed.

Gibson, Dunn & Crutcher, William D. Claster and Alan J. Gordee for Defendants and Appellants.

Ferruzzo & Worthe, James J. Ferruzzo, John R. Pelle, Todd C. Worthe and Ann L. Mezzacappa for Plaintiffs and Respondents.

AARON, J.

Sony Computer Entertainment America, Inc. (SCEA) and Shu Yoshida appeal from an order denying their motion to compel arbitration of a complaint brought against them by Christopher Whaley and Kelly Walker. We conclude that the trial court did not misapply the law in denying the motion pursuant to Code of Civil Procedure¹ section 1281.2, subdivision (c). Accordingly, we affirm the trial court's order.

I FACTUAL AND PROCEDURAL BACKGROUND

A. SCEA's Complaint Against Ryan and Sevigny

On April 1, 2003, SCEA filed a complaint against Kelly Ryan and his wife, Traci Sevigny Ryan (Sevigny), in San Diego County Superior Court (the Ryan litigation). In the complaint, SCEA alleged that Ryan, Whaley, and Walker had worked together as employees of SCEA before Whaley and Walker left to form a new company, Red Zone. In October 1998, Red Zone entered into a development agreement with 989 Studio, a division of SCEA, for the development of Sony PlayStation interactive games. Whaley and Walker worked closely with Ryan in developing software for SCEA.

In December 2000, SCEA purchased all the assets of Red Zone and entered into an incentive agreement with certain employees of Red Zone. According to SCEA's complaint, Ryan and Sevigny secretly conspired to make Sevigny a signatory of the incentive agreement so that she would be placed on the payroll of the Red Zone division of SCEA after the acquisition, even though she had held no position at Red Zone and had performed no work for the company. SCEA paid Sevigny approximately $292,000 in salary, pay, and incentive bonus between December 1, 2000 and December 19, 2002, without knowing that Sevigny performed no duties for the company.

SCEA's complaint against Ryan and Sevigny alleged causes of action for conversion, money had and received, fraud by suppression of fact, and fraud by intentional misrepresentation.

B. Ryan's Cross-Complaint Against SCEA

On August 1, 2003, Ryan filed a cross-complaint against SCEA and SCEA vice-president Shu Yoshida. Ryan alleged that before SCEA's acquisition of Red Zone, he had informed Yoshida that he intended to resign from SCEA and join Red Zone so that he could participate in the financial benefits of the acquisition. Ryan told Yoshida that Whaley and Walker were agreeable to such an arrangement. However, Yoshida did not want to lose Ryan as an employee of SCEA. According to the cross-complaint, Yoshida orally agreed that Red Zone could put Sevigny on its payroll so that she would receive the financial benefits Ryan would have received as an employee of Red Zone, and Ryan would remain an employee of SCEA as manager of 989 Studios.

Ryan alleged in his cross-complaint that he was wrongfully terminated by SCEA on February 7, 2003, and that Yoshida falsely disavowed the oral promises he had made about putting Sevigny on SCEA's payroll. Ryan's cross-complaint asserted causes of action for breach of employment contract, breach of third party beneficiary contract, fraud and deceit, intentional interference with prospective economic advantage, implied indemnity, and negligent misrepresentation.

C. Whaley's and Walker's Complaint Against SCEA

On the same day that Ryan filed his cross-complaint, Whaley and Walker filed a separate action against SCEA and Yoshida. Whaley and Walker were represented by the same law firm as Ryan, and their complaint contained substantially the same allegations concerning Yoshida's alleged oral agreement that Sevigny would be added to the Red Zone payroll. Whaley and Walker further alleged that, as part of the acquisition agreement between SCEA and Red Zone, they had entered into written employment agreements and an incentive agreement with SCEA. According to the complaint, SCEA wrongfully terminated Whaley and Walker on February 7, 2003. The complaint asserted causes of action for breach of employment contract, breach of incentive agreement, unpaid wages, fraud and deceit, intentional interference with prospective economic advantage, and negligent misrepresentation.

Though not specifically alleged in the pleadings, the parties do not dispute that Ryan, Whaley and Walker were each terminated for their involvement in the alleged conspiracy to defraud SCEA by arranging to have Sevigny placed on the payroll.

D. The Motion to Compel Arbitration

On September 8, 2003, SCEA and Yoshida filed a motion to compel arbitration of the claims asserted by Whaley and Walker. In the motion, SCEA and Yoshida alleged that Whaley and Walker had refused to submit the matter to arbitration, despite the fact that the asset purchase agreement, the incentive agreement, and the employment agreements all required arbitration of any claims arising out of or relating to the agreements.

Whaley and Walker argued that the court should deny arbitration and consolidate their complaint with Ryan's cross-complaint against SCEA and Yoshida, pursuant to section 1281.2, subdivision (c). Whaley and Walker asserted that their suit against SCEA and Yoshida arose out of the same set of facts as Ryan's cross-complaint and raised the same factual issue: whether Sevigny's employment was the result of a fraudulent conspiracy or an agreement between Yoshida, Ryan, Whaley, and Walker. Because Ryan was not a party to the arbitration agreements and could not be compelled to arbitrate his claims, Whaley and Walker argued that SCEA's motion to compel arbitration should be denied and the matter consolidated with Ryan's cross-complaint.

The trial court denied the motion to compel arbitration under the authority of section 1281.2, subdivision (c). The court reasoned in relevant part:

"The court finds that although an arbitration agreement exists between the parties to this action, that a party to the arbitration agreement (SCEA) is also a party to a pending court action (GIN028761) with third parties (Kelly Ryan and Tracy Ann Sevigny Ryan), arising out of the same transaction or series of related transactions. There is a possibility of conflicting rulings on common issues of law or fa[c]t should the matter proceed to arbitration.

"Specifically, there is the possibility that an arbitrator might find in Case No. GIN031654 that Shu Yoshida, as an authorized agent of SCEA, agreed to allow Traci Ann Sevigny Ryan to participate in the financial benefits of the acquisition of Red Zone by SCEA, and that the termination of Walker and Whaley was therefore an unjustified breach of their employment contract.

"On the other hand, there is a possibility that a judicial officer [in] Case No. GIN028761 might find that Shu Yoshida, acting on behalf of SCEA made no such agreement with the Ryans, Walker, and Whaley; that the Ryans, Walker, and Whaley acted independently to defraud SCEA; and that SCEA was justified in filing an action against the Ryans. Such a finding would also justify the termination of Walker and Whaley and would be inconsistent with the arbitration award on a material fact."

SCEA and Yoshida² appeal from the trial court's order denying their motion to compel arbitration. The order is appealable pursuant to section 1294, subdivision (a).

II DISCUSSION

A. Standard of Review

An order staying or denying arbitration under section 1281.2, subdivision (c) is ordinarily reviewed for abuse of discretion. (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101.) However, the sole issue raised by SCEA on appeal — whether the trial court erred in allowing Whaley and Walker to invoke the protections of section 1281.2 — is one of statutory construction. Accordingly, we apply a de novo standard of review. (See Do v. Superior Court (2003) 109 Cal.App.4th 1210, 1212-1213.)

B. The Trial Court Did Not Misapply the Law in Denying the Motion to Compel Arbitration

SCEA asserts that section 1281.2, subdivision (c) may be applied only at the request of a party to an arbitration agreement who is caught "in the middle" of a multi-party dispute in which some litigants are bound by the arbitration agreement, and others are not. Because Whaley and Walker are not involved in litigation with anyone other than SCEA concerning the matters at issue here — and they are not parties to the Ryan litigation — SCEA argues that Whaley and Walker lack standing to invoke the protections of the statute.³ We reject this contention.

In construing any statute, "[w]ell-established rules of statutory construction require us to ascertain the intent of the enacting legislative body so that we may adopt the construction that best effectuates the purpose of the law." (Hasson v. Mercy American River Hospital (2003) 31 Cal.4th 709, 715.) "We first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent. [Citation.] The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context." (Ibid.) If the statutory language is unambiguous, "we presume the Legislature meant what it said, and the plain meaning of the statute governs." (People v. Robles (2000) 23 Cal.4th 1106, 1111.)

Section 1281.2 provides in relevant part:

"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...