Landsverk v. Lindsey

1

RICHARD LANDSVERK, Individually and as Trustee, etc. et al., Plaintiffs and Respondents, v. WILLIAM RAY LINDSEY, et al., Defendants and Appellants.

E078989

California Court of Appeals, Fourth District, Second Division

August 12, 2024

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County, No CIVSB2110153 Janet M. Frangie, Judge. Reversed with directions.

Markun Zusman & Compton, Edward S. Zusman, Kevin K. Eng and Tadeusz McMahon for Defendants and Appellants.

Reif Law Group, Brandon S. Reif and Marc S. Ehrlich for Plaintiffs and Respondents.

OPINION

FIELDS J.

I. INTRODUCTION

Plaintiffs and respondents Richard Landsverk and Dorothy Landsverk (the Landsverks), and seven other plaintiffs and respondents,^[1] sued ten defendants, including defendant and appellant, William Ray Lindsey (Lindsey),^[2] alleging tort claims against all defendants based on financial and estate planning services that defendants, through Lindsey, provided to the Landsverks and the seven other plaintiffs between 2011 and 2019. Plaintiffs' complaint alleges five tort cases of action against each defendant: breach of fiduciary duty financial elder abuse, common law fraud, professional negligence, and constructive fraud.

Six of the ten defendants, namely, the Lindsey defendants,^[3] moved to compel arbitration of plaintiffs' claims. The other four defendants, Meyer, Pearson, Nepsis, and NOFI (the "non-Lindsey defendants) did not join the Lindsey defendants' motion, or file their own motion to compel arbitration. The trial court denied the Lindsey defendants' motion, and the Lindsey defendants' appeal. The complaint has been ordered dismissed against Meyer.

The Lindsey defendants' motion is based on the arbitration provisions of two agreements that the Landsverks signed with two Lindsey-affiliated entities, in connection with purchasing financial planning services through Lindsey: (1) a "financial planning agreement" signed in March 2012 between the Landsverks and nondefendant "LFG Family Office Services, Inc." (LFGFOS) (the 2012 agreement), and (2) a "client services agreement" signed in March 2018 between the Landsverks and Lindsey defendant, LFI (the 2018 agreement). None the defendants are signatories to the 2012 agreement. LFI is the only Lindsey defendant, and the only defendant, that is a signatory to the 2018 agreement. Besides the Landsverks, none of the other plaintiffs are signatories to either agreement.

The trial court denied the Lindsey defendants' motion based on the "third party litigation exception" to the California law generally requiring courts to enforce written arbitration agreements. (Code Civ. Proc., § 1281.2, subd. (c) (§ 1281.2(c)).^[4] The court noted that the Lindsey defendants who were not signatories to the 2012 or the 2018 agreement (all of the Lindsey defendants except LFI), failed to articulate a legal basis entitling them to enforce the arbitration provisions of either agreement against any of the plaintiffs. The court rejected the Lindsey defendants' claim that the third party litigation exception did not apply (1) based on the choice of law provisions of the two agreements, and (2) because the substantive provisions of the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (the FAA) preempted California's third party litigation exception. (Code Civ. Proc. § 1281.2(c)). The court also found the third party litigation exception applied, that is, there was a possibility of conflicting rulings on common questions of law and fact if the Landsverks' claims against LFI were arbitrated, but the Landsverks' claims against the other defendants, and the other plaintiffs' claims against all defendants, were tried in court. Thus, the court exercised its discretion to deny the motion under the third party litigation exception. (Ibid.)

For the first time in this appeal, the Lindsey defendants claim they are entitled to enforce the arbitration provisions of the 2012 and 2018 agreements against all plaintiffs based on theories of equitable estoppel, even though none of the Lindsey defendants are signatories to the 2012 agreement and only LFI is a signatory to the 2018 agreement. The Lindsey defendants also renew their claims that the third party litigation exception (§1281.2(c)) does not apply, based on the choice of law provisions of the agreements and because the substantive provisions of the FAA preempt the third party litigation exception. Thus, the Lindsey defendants claim the court was required to order plaintiffs' claims against the Lindsey defendants to arbitration, even there is a possibility of conflicting rulings on common questions of law and fact if plaintiffs' claims against the Lindsey defendants are arbitrated but plaintiffs' claims against the non-Lindsey defendants are not. (§1281.2(c).)

We conclude that plaintiffs are equitably estopped from refusing to arbitrate their claims against the Lindsey defendants. We also conclude that the third party litigation exception applies to plaintiffs' nonarbitrable claims against the non-Lindsey defendants, namely, Pearson, Nepsis, and NOFI. (§ 1281.2(c).) We reject the Lindsey defendants' choice-of-law and FAA-preemption claims.

Thus, we reverse the order denying the Lindsey defendants' motion to compel arbitration of plaintiffs' claims against the Lindsey defendants. We remand the matter to the trial court with directions to determine the appropriate disposition of the matter under the third party litigation exception, that is, whether to deny or stay arbitration of plaintiffs' claims against the Lindsey defendants, in light of plaintiffs' nonarbitrable claims against Pearson, Nepsis, and NOFI, and the possibility of conflicting rulings on common questions of law and fact in the arbitration and court proceedings. (§1281.2(c).)

II. FACTS AND PROCEDURE

A. The Third Party Litigation Exception, Overview

"California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes." (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 (Acquire II); Moncharsh v. Heily &Blase (1992) 3 Cal.4th 1, 9.) To further this policy, section 1281.2 requires a trial court to enforce a written arbitration agreement, by ordering the parties to the agreement to arbitration, unless one of three "limited" statutory exceptions applies: "(1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; [or] (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues. (§ 1281.2, subds. (a)-(c).)" (Acquire II, at p. 967; People v. Laswell (2010) 189 Cal.App.4th 1399, 1404-1405 (Laswell).) The third of these exceptions, set forth in section 1281.2(c), is known as the "third party litigation exception." (Williams v. Atria Las Posas (2018) 24 Cal.App.5th 1048, 1054 (Williams).)

For purposes of the third party litigation exception, a "third party" means a party that is not bound by the arbitration agreement. (RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1519.) 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 v. Concierge Services (2005) 35 Cal.4th 376, 393 (Cronus).) The third party litigation exception "thus does not apply when all defendants, including a nonsignatory to the arbitration agreement, have the right to enforce the arbitration provision against a signatory plaintiff. [Citations.] The exception' "is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California's statutory scheme designed to enforce the parties' arbitration agreements.'" (Laswell, supra, 189 Cal.App.4th at p. 1405, quoting Cronus, at p. 393.)

The third party litigation exception (§1281.2(c)) applies when three conditions are satisfied: (1) "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party [i.e., a party not bound by the arbitration agreement]," (2) the third party action "aris[es] out of the same transaction or series of related transactions" as the action between the parties to the arbitration agreement; and (3) "there is a possibility of conflicting rulings on a common issue of law or fact" in the arbitrable and third party actions. (Acquire II, supra, 213 Cal.App.4th at pp. 967-968.) If these three conditions are satisfied, section 1281.2(c) "identifies four options from which the court may choose: (1) 'refuse to enforce the arbitration agreement and . . . order intervention or joinder of all parties in a single action or special proceeding'; (2) 'order intervention or joinder as to all or only certain issues'; (3) 'order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding'; or (4) 'stay arbitration pending the outcome of the court action or special proceeding.' (Acquire II, at p. 968; Williams, supra, 24 Cal.App.5th at p. 1054.)

B. The Allegations of Plaintiffs' Complaint^[5]

1. Background Allegations

In 2011, the Landsverks owned around $11.3 million in investment assets, including over $2 million in stock and bond funds over $2 million in annuity contracts with insurance companies, and nearly $7 million in rental real estate. The Landsverks were elderly and "experiencing cognitive decline." Two years earlier, in 2009, Richard suffered a stroke, which left him "with cognitive impairment and coordination issues" and "no longer able to...