Judge: Layne H. Melzer, Case: 2023-01312896, Date: 2023-08-17 Tentative Ruling

Petitioner Raul Olavarria

Petition to Compel Arbitration

Tentative Ruling

Petitioner Raul Olavarria (“Petitioner”) petition for an order compelling Respondent Fluence Corporation LLC (“Respondent”) to arbitrate Petitioner’s claims against Respondent is denied.

There is no dispute Respondent is not a signatory to the Share Purchase Agreement (“SPA”), which included an arbitration provision.  (Petition, Exhibit A, Section 7.9.)  Petitioner contends Respondent is a third party beneficiary to the Share Purchase Agreement.  Petitioner also contends that Respondent is estopped from resisting arbitration due to its participation to date in the arbitration proceedings.

“[W]hether a contract may be enforced by or against a nonsignatory to the contract is determined by principles of state law…To that, ‘there are six theories by which a nonsignatory may be bound to arbitrate: ‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.’”  Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal.App.5th 834, 840-841 (internal citations omitted).

Third Party Beneficiary

Under the third party beneficiary theory, a nonsignatory may be compelled to arbitrate where the nonsignatory is a third party beneficiary of the contract. Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1069.  Whether a nonsignatory is an intended third party beneficiary to the contract is determined from the parties’ intent, as gleaned from the contract as a whole and the circumstances under which it arose. Epitech, Inc. v. Kann (2012) 204 Cal.App.4th 1365, 1371–1372; Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc., 44 Cal.App.5^th at 841.

A person “only incidentally or remotely benefited” from a contract is not a third party beneficiary. Lucas v. Hamm (1961) 56 Cal.2d 583, 590. Thus, “the ‘mere fact that a contract results in benefits to a third party does not render that party a “third party beneficiary.” ’ ” Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 302.  Nor does knowledge that the third party may benefit from the contract suffice. Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.  Rather, the parties to the contract must have intended the third party to benefit. Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.(“ ‘[a] putative third party's rights under a contract are predicated upon the contracting parties’ intent to benefit’ it”).

As set forth by the California Supreme Court in Goonewardene:

To show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (1) “the third party would in fact benefit from the contract”; (2) “a motivating purpose of the contracting parties was to provide a benefit to the third party”; and (3) permitting the third party to enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124.)

Petitioner did not show a motivating intent was to benefit Respondent, nor that the intent of only one party to the SPA is sufficient to establish sufficient intent to make Respondent a third party beneficiary.  Petitioner cannot show an intent to make Fluence Corp. a third party beneficiary without showing that such intent is reflect in the terms of the agreement itself.

On the arguments and authorities presented by the parties, and in the absence of identification of any provision within the SPA reflecting an intent to benefit Respondent directly (rather than incidentally), the court finds that Petitioner has not shown that Respondent is a third party beneficiary of the SPA.

Estoppel

“Under the equitable estoppel theory, a nonsignatory is estopped from avoiding arbitration if it knowingly seeks the benefits of the contract containing the arbitration clause… Equitable estoppel, thus, precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.  Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal.App.5th 834, 841 (internal citations omitted.).

Respondent has at each stage asserted its position that it is not subject to arbitration because it did not sign the PSA.  Its subsidiaries, who do not dispute there are subject to arbitration, have asserted substantive arguments in the parties’ joint briefs.  Respondent’s limited participation in procedural matters – presaged with its objection and followed by its motion to dismiss for lack of jurisdiction – cannot be interpreted as consent to arbitration.

The court finds that that Respondent has not impliedly agreed to, and is not estopped from avoiding, arbitration.

Accordingly, the petition is denied.