23 Cal. App. 5th 462
Cal. Ct. App. 5th2018Background
- Benaroya Pictures (Producer) and Westside (Lender, Bruce Willis as president) entered an escrow agreement with a JAMS arbitration clause concerning dispute over $8 million for Willis's services.
- Westside and Willis (respondents) initiated arbitration alleging Benaroya breached the escrow by failing to pay Willis; Benaroya counterclaimed.
- Respondents sought leave to amend their arbitration demand to add Michael Benaroya (appellant), a nonsignatory, alleging he was Benaroya Pictures' alter ego. The arbitrator granted the motion under incorporated JAMS rules and proceeded to decide the alter ego issue.
- The arbitrator found Michael Benaroya to be the corporate alter ego, awarded respondents over $5 million, and held both the corporation and Michael personally liable.
- The trial court confirmed the award and denied vacatur; Michael appealed, arguing a nonsignatory cannot be compelled to arbitrate absent a judicial determination that he agreed to arbitrate (i.e., the court, not an arbitrator, must decide alter ego issues as a predicate to binding a nonsignatory).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an arbitrator (under incorporated JAMS rules) can decide if a nonsignatory is compelled to arbitrate as an alter ego | Respondents: JAMS rules (incorporated) give arbitrator power to decide jurisdiction and who are proper parties, so arbitrator could decide alter ego and bind Michael | Appellant/Benaroya: Michael is a nonsignatory; the question whether a nonsignatory may be compelled to arbitrate is for the court in the first instance, not the arbitrator | Court: Reversed; as a matter of law a trial court must decide whether a nonsignatory can be compelled to arbitrate (alter ego). The arbitrator exceeded authority as to Michael; award vacated as to him and confirmed only as to the corporation. |
| Whether party conduct (participation/objection) implicitly consents to arbitrator deciding arbitrability for a nonsignatory | Respondents: participation and lack of full objection implied consent to arbitrate issues, delegating arbitrability | Appellant: they repeatedly objected; mere appearance and contesting does not waive the right to a judicial decision on nonsignatory status | Court: No implied delegation; repeated objections preserved the right to a court decision; consent cannot be inferred here. |
| Whether error was harmless because evidence supported alter ego finding | Respondents: Even if forum error, arbitrator record showed overwhelming evidence of alter ego, so confirmation should stand | Appellant: Wrong decisionmaker is not subject to harmless-error analysis; who decides is critical | Court: Error not harmless; wrong decisionmaker undermines ability to review and is reversible. |
Key Cases Cited
- American Builder's Assn. v. Au-Yang, 226 Cal.App.3d 170 (Cal. Ct. App.) (arbitrator may not decide whether a nonsignatory is bound; that is for the court)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (who decides arbitrability matters because courts give extreme deference to arbitrators' merits decisions)
- Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233 (Cal. 2016) (cannot presume arbitrability without first establishing consent to arbitrate)
- Greenspan v. LADT, LLC, 185 Cal.App.4th 1413 (Cal. Ct. App.) (incorporation of arbitral rules can be clear delegation of arbitrability issues—but does not allow compelling a nonsignatory)
- Comerica Bank v. Howsam, 208 Cal.App.4th 790 (Cal. Ct. App.) (arbitrator may decide alter ego when signatories clearly and unmistakably delegate such issues and nonsignatory status not implicated)
- Keller Constr. Co. v. Kashani, 220 Cal.App.3d 222 (Cal. Ct. App.) (statutory/structural circumstances may bind certain principals/partners, but court must determine agreement to arbitrate before compelling arbitration)