Benaroya v. Willis

23 Cal.App.5th 462

232 Cal.Rptr.3d 808

Michael BENAROYA, Petitioner and Appellant,

v.Bruce WILLIS et al., Respondents.

B281761

Court of Appeal, Second District, Division 4, California.

Filed May 17, 2018

Loeb & Loeb, David Grossman and Robert J. Catalano, Los Angeles, for Petitioner and Appellant.

Lavely & Singer, Martin D. Singer, Allison S. Hart, Los Angeles; Horvitz & Levy, Jeremy B. Rosen and John F. Querio, Burbank, for Respondents.

WILLHITE, J.

Benaroya Pictures (Benaroya) contracted with Westside Corporation (Westside) to pay the well-known actor Bruce Willis, the president of Westside, to perform in a movie to be produced by Benaroya. After a dispute arose regarding Willis' payment, Willis and Westside (collectively respondents) commenced arbitration proceedings against Benaroya, pursuant to the arbitration clause in the agreement. While in arbitration, respondents moved to amend their arbitration demand to name appellant Michael Benaroya individually, even though he was not a party to the agreement, on the ground that he was the alter ego of Benaroya. The arbitrator granted the request, found appellant to be Benaroya's alter ego, and awarded damages to respondents for which both Benaroya and appellant, as Benaroya's alter ego, were liable. The trial court denied appellant and Benaroya's petition to vacate the award as to appellant, and granted respondents' petition to confirm the award. In this appeal from the confirmation of the award, appellant contends the trial court erred because he was a nonsignatory to the arbitration agreement, and only the court, not the arbitrator, had authority to determine whether he was compelled to arbitrate as the alter ego of Benaroya. We agree and therefore reverse the judgment. We remand the case to the trial court with directions to: (1) set aside its rulings denying appellant and Benaroya's petition to vacate the award and granting respondent's petition to confirm; and (2) enter new orders granting appellant and Benaroya's petition to vacate the award as to appellant, and granting respondents' petition to confirm the award only as to Benaroya.

FACTUAL AND PROCEDURAL BACKGROUND

In September 2014, Benaroya and Westside entered an escrow agreement for Creative Artists Agency to hold $8 million in trust for the services of Bruce Willis in a movie. Willis signed the agreement as president of Westside, designated in the contract as "Lender," and appellant signed on behalf of Benaroya Pictures, identified as "Producer." The agreement contained an arbitration clause, providing in relevant part: "If there is any dispute between Producer and Lender with respect to the disposition of funds deposited in the Escrow Account, the parties agree that such dispute shall be resolved exclusively through arbitration ... pursuant to the rules and regulations of JAMS [Judicial Arbitration and Mediation Service] before a single arbitrator. If the parties are unable to agree upon an arbitrator, the arbitrator will be selected according to the Commercial Arbitration Rules of JAMS."¹

In May 2015, respondents filed a demand for arbitration pursuant to the arbitration clause, alleging that Benaroya breached the escrow agreement by failing to pay Willis. Benaroya filed an answer and counterclaim, alleging money had and received, conversion, and breach of the contract by Willis.

On September 10, 2015, respondents moved before the arbitrator to amend the arbitration demand to name appellant as an additional party. The motion for leave to amend asserted that appellant is "the founder, principal, managing member, sole officer and Chief Executive Officer of Benaroya Pictures."

Benaroya opposed the motion, arguing that appellant was not a party to the escrow agreement and arbitration clause, and that the question whether a nonsignatory can be compelled to arbitrate is a question for the trial court alone.

After the arbitrator issued a tentative ruling granting respondents' motion for leave to amend, Benaroya and appellant informed the arbitrator and respondents "that they would submit" on the tentative ruling. The arbitrator then granted the motion to amend and named appellant as a party to the arbitration, relying on Rule 11(b) of the JAMS Comprehensive Arbitration Rules and Procedures, which "provides that jurisdictional disputes, including regarding who are proper parties to the Arbitration, ‘shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction ... issues as a preliminary matter.’ " In support of the ruling, the arbitrator cited Comerica Bank v. Howsam (2012) 208 Cal.App.4th 790, 145 Cal.Rptr.3d 795 ( Comerica ) for the proposition that "[a]n arbitrator may decide the question whether an alter ego relationship exists when the designated arbitration rules give the arbitrator the power to determine the question."

Following the ruling, Benaroya's arbitration brief continued to dispute the arbitrator's exercise of jurisdiction over appellant. For their part, respondents' brief asked the arbitrator to draw an adverse inference against appellant on the alter ego issue, because Benaroya had not produced financial documents in response to a subpoena. Benaroya and appellant opposed the request, reiterating their position that the arbitrator lacked authority to bind appellant as Benaroya's alter ego.² Appellant and Benaroya challenged the alter ego theory again in their post-hearing closing brief.

The matter proceeded through arbitration. Ultimately, in the final arbitration award, the arbitrator determined appellant to be Benaroya's alter ego. The arbitrator found "considerable unity of interest between [Benaroya] and [appellant]," reasoning that appellant "solely controls" and "adds funds" to Benaroya. He further reasoned that appellant "personally made the misrepresentations to Willis' agents on behalf of [Benaroya]." The arbitrator further cited appellant's admission of "sloppy record-keeping," his failure to "produce many documents," and his lack of credibility. The arbitrator concluded that, although it was "a close call, ... an inequity would result if [appellant] was not found to be [Benaroya's] alter ego." On the merits of the contract dispute, the arbitrator found in favor of respondents and awarded them $5,024,778.61 in damages, plus prejudgment interest, attorney fees, and costs, for which Benaroya and appellant (as Benaroya's alter ego) were liable.

Appellant and Benaroya moved to vacate the arbitration award or to correct it to remove appellant as a party. They argued that the arbitrator exceeded his authority by making the alter ego finding and exercising jurisdiction over appellant, a nonsignatory to the arbitration agreement. They further argued that the arbitrator's determination usurped the authority of the court and was legally unsupportable. Respondents filed a petition to confirm the award. The trial court granted respondents' petition, denied appellant and Benaroya's petition, and entered judgment in favor of respondents. Appellant timely appealed.

DISCUSSION

Appellant contends the trial court erred in confirming the arbitration award because the decision whether a nonsignatory to an arbitration agreement can be compelled to arbitrate is a matter solely within the authority of the trial court, not the arbitrator. We agree: while the relevant JAMS rule here permits an arbitrator to determine whom among signatories to an arbitration agreement are proper parties for the dispute to be arbitrated, the rule cannot (and does not) permit the arbitrator to determine whether a nonsignatory to the arbitration agreement can be compelled to arbitrate. The authority to decide that question resides, by law, solely with the trial court.

The escrow agreement stated that it was "between Benaroya Pictures (‘Producer’) and Westside Corp ... (‘Lender’) [for the services of] Bruce Willis (‘Artist’)." As we have noted, the arbitration provision in the escrow agreement provided in pertinent part: "If there is any dispute between Producer and Lender with respect to the disposition of funds deposited in the Escrow Account, the parties agree that such dispute shall be resolved exclusively through arbitration in Los Angeles, California pursuant to the rules and regulations of JAMS before a single arbitrator. If the parties are unable to agree upon an arbitrator, the arbitrator will be selected according to the Commercial Arbitration Rules of JAMS." In the provision on governing law, the agreement stated, in part that "all disputes which may arise between the parties hereto under or with respect to this Escrow Agreement ... will be determined pursuant to California law and shall be resolved either by arbitration in accordance with the rules of JAMS or by a determination by a SAG-AFTRA arbitration tribunal, based upon the election of fora permitted by this Escrow Agreement. All such procedures shall be held in Los Angeles, California and Producer and Lender hereby submit to personal jurisdiction in the State of California for such purposes."

The trial court reasoned that the arbitrator's powers derive from the agreement to arbitrate and therefore examined the arbitration provision in the escrow agreement to determine if the arbitrator exceeded his powers. Because the escrow agreement stated that the rules of JAMS applied, the court looked to those rules, which state that the arbitrator shall determine its own jurisdiction, and concluded that the arbitrator correctly determined the alter ego issue and did not impermissibly expand the scope of the arbitration provision.³

"We review de novo the trial court's order confirming the arbitration award. [Citations.]" ( Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1435, 111 Cal.Rptr.3d 468 ( Greenspan ).) "Whether an arbitration agreement is binding on a third party (e.g., a nonsignatory) is a question of law subject to de novo review. [Citation.]" ( Daniels v. Sunrise Senior Living, Inc. (2013) 212 Cal.App.4th 674,...