Scott v. Barlett

JAMES SCOTT, Plaintiff and Appellant, v. JAMIE BARLETT et al., Defendants and Appellants.

D077675

California Court of Appeals, Fourth District, First Division

August 31, 2021

NOT TO BE PUBLISHED

APPEALS from an order of the Superior Court of San Diego County No. 37-2018- 00004089-CU-FR-CTL, Randa Trapp, Judge. Construed as petitions for writ of mandate. Petitions denied.

Law Office of Michael A. Conger and Michael A. Conger for Plaintiff and Appellant.

Computerlaw Group and Giacomo Russo for Defendants and Appellants.

GUERRERO, J.

James Scott sued his former employer, JCB Management, Inc. (JCB) and its owner, Jamie Barlett, for fraud and breach of contract after they allegedly failed to grant him an equity stake in JCB. JCB, in turn, filed a claim in arbitration against Scott for destroying and retaining electronically stored information belonging to JCB and for filing his lawsuit in violation of an arbitration clause. In the trial court, JCB and Barlett moved to compel arbitration of Scott's claims against them. The court granted the motion to compel arbitration and stayed the lawsuit.

After a hearing, an arbitrator generally found in favor of JCB and Barlett and against Scott. Among other things, he ordered Scott to return all electronically stored information belonging to JCB. The arbitrator determined that JCB and Barlett were the prevailing parties and awarded them approximately $280, 000 in attorney fees and costs.

Back in the trial court, Scott moved to vacate the award, and JCB and Barlett moved to confirm it. In a written order, the court granted and denied each motion in part. The court found that the arbitration agreement empowered it to review the award for errors of law, and it determined the arbitrator erred by finding in favor of JCB on one of its claims. It therefore vacated that portion of the award. Because the arbitrator had not broken out his fee award by claim, the court set a hearing “to determine reasonable attorney fees for the arbitration, consistent with this ruling, which may include additional time spent preparing/opposing the attorney fee motion.” The court stated that JCB and Barlett's motion to confirm was granted in part and denied in part. But it noted the arbitration award was “not yet confirmed” as described in its order.

Scott appeals the court's order, and JCB and Barlett cross-appeal. The court's order, however, is not appealable. It is not identified by statute as an appealable order in arbitration proceedings. (See Code Civ. Proc § 1294.)^[1] And, relatedly, it is not a judgment or other final adjudication of the claims of the parties relating to the arbitration award. (See § 904.1, subd. (a).) Nonetheless, as requested by both parties, we exercise our discretion to construe the appeals as petitions for writ of mandate.

On the merits, Scott contends the trial court erred by (1) granting JCB and Barlett's motion to compel arbitration, (2) refusing to vacate the arbitration award in its entirety, and (3) declining to award Scott his attorney fees on JCB's statutory claims. JCB and Barlett contend the court erred by vacating part of the award based on an error of law. We conclude the parties have not shown prejudicial error and deny the petitions for writ of mandate.

FACTUAL AND PROCEDURAL BACKGROUND

Scott began work at JCB in 2014 as a senior vice president. He signed an employment agreement with an arbitration clause. The clause provided, in relevant part, “Employee and Employer agree that any dispute that arises out of or relates to Employee's employment with Employer, including but not limited to any dispute against any present or former officer director, employee, agent, attorney, or insurer of the Employer, the dispute [sic] shall be submitted to binding arbitration pursuant to the Federal Arbitration Act using the procedural rules for the resolution of employment disputes of the American Arbitration Association then in effect.... The parties each expressly waive the right to a jury trial, and agree that the arbitrator's award shall be final and binding on the parties, provided that any award shall be reviewable by a court of law for to [sic] the fullest extent allowed by law, including for any error of law by the arbitrator.” (Capitalization omitted.) The employment agreement empowered the arbitrator to award the prevailing party its reasonable costs and attorney fees. It also contained a fee provision allowing the recovery of reasonable attorney fees in any legal proceeding necessary to enforce or interpret the agreement.

Scott also signed a confidentiality agreement. Among other things, the confidentiality agreement required Scott, upon termination of his employment, to return and not retain any JCB confidential information. The agreement stated that JCB may enforce the provisions of the agreement “in a court action for injunctive or other equitable relief” notwithstanding the parties' arbitration agreement.

After several years, Scott and Barlett began negotiations on an agreement that would grant Scott “[p]hantom” equity units in a related JCB entity. The phantom equity units represented a right to receive a cash payment from JCB if a defined liquidity event occurred. Although the parties discussed a draft written phantom equity agreement, the agreement was never signed. The draft contained an integration clause stating that it was the “entire agreement between the parties hereto with regard to the subject matter hereof. This agreement supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied), which relate to the subject matter hereof.”

JCB terminated Scott's employment in late 2017. Scott filed his lawsuit against JCB and Barlett soon thereafter. He alleged three causes of action for fraud and two for breach of contract. All of his causes of action were based on JCB and Barlett's alleged failure to grant him equity.

JCB filed a claim in arbitration against Scott. It alleged that Scott destroyed and refused to return electronically stored information belonging to JCB and that he filed his lawsuit in violation of the arbitration clause.

In the trial court, JCB and Barlett moved to compel arbitration of Scott's claims. They argued that the claims fell within the arbitration clause of Scott's employment agreement. The claims therefore belonged in arbitration, and the court action should be stayed or dismissed.

Scott opposed the motion to compel. He contended that his claims were based on the phantom equity agreement, not his employment agreement, and were not subject to arbitration. He believed the integration clause in the phantom equity agreement rendered any prior arbitration clause ineffective for any claims based on the equity agreement. Alternatively, if the arbitration clause covered his claims, Scott argued it was procedurally and substantively unconscionable.

The trial court granted the motion to compel arbitration and stayed the lawsuit. It found that Scott's claims were covered by the arbitration clause in his employment agreement. He had not shown the phantom equity agreement had been executed by either party. And, in any event, the phantom equity agreement did not supersede the arbitration agreement because its integration clause was expressly limited to the subject matter of the agreement, as in Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 15-16 (Jenks). The court rejected Scott's claim that the arbitration clause should not be enforced because it was unconscionable.

Scott asserted his fraud and breach of contract causes of action as counterclaims in arbitration. The arbitration proceeded under the auspices of the American Arbitration Association (AAA).

The arbitrator held a three-day hearing in May 2019. After the hearing, the arbitrator issued an interim award addressing the parties' claims and counterclaims. JCB's claims were based on breach of Scott's employment agreement and the confidentiality agreement. JCB also alleged that Scott violated the Comprehensive Computer Data Access and Fraud Act (CDAFA; Pen. Code, § 502) and the federal Computer Fraud and Abuse Act (CFAA; 18 U.S.C. § 1030). Scott's counterclaims were based on breach of the phantom equity agreement and related fraud. In a threshold ruling, the arbitrator rejected Scott's renewed contention that the arbitration agreement was unconscionable and unenforceable.

As to the merits of JCB's claims, the arbitrator found that Scott did not breach his employment agreement by filing his lawsuit in the trial court, rather than making a claim in arbitration. But the arbitrator found that Scott had breached the employment agreement, as well as the confidentiality agreement, by retaining and failing to return JCB electronically stored information. He rejected Scott's defense that returning copies of the JCB information was sufficient. Scott breached the agreements by retaining his own copies.

The arbitrator also rejected Scott's defense that JCB did not have standing to sue for breach because the information did not belong to JCB. The arbitrator found that “JCB has the legal standing to seek return of this material based on its own proprietary rights.” The confidentiality agreement required Scott to return all documents and data pertaining to his employment. JCB was his employer, even if he worked on projects for various related entities. The arbitrator wrote, “During the last approximate[ly] 2 years of Scott's employment, he was working fulltime on the POS system under a written employment contract with JCB not with [its subsidiaries]. [Citation.] Thus, Scott's obligation... to deliver all documents and data ‘pertaining to Employee's employment' includes information pertaining to the...