Thursday, December 17, 2015
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C.A. Rules for Law Firm in Dispute With Ex-Associate
Lawyer Still Bound by Arbitration Agreement After Firm Merger, Panel Says
By KENNETH OFGANG, Staff Writer
An attorney who agreed to arbitrate employment disputes with his firm remained subject to that agreement after the firm was swallowed up in a merger, the First District Court of Appeal ruled yesterday.
Div. One affirmed a San Francisco Superior Court judge’s order confirming an award in a dispute between attorney M. Todd Jenks and the merged firm of DLA Piper Rudnick Gray Cary US LLP.
Jenks, a graduate of the University of Florida College of Law, was admitted to the State Bar in 1996 and accepted employment at Gray Cary Ware & Friedenrich in 2000. The offer included an arbitration agreement.
Gray Cary merged into DLA Piper in 2005. Jenks remained at the new firm until the following year.
In February 2006, he entered into a termination agreement. In exchange for his resignation from the firm and release of all claims, DLA Piper agreed that he would officially remain employed until August of that year, and would receive “insurance coverage and other benefits, insurance and otherwise, currently provided by the Firm” until that time.
That agreement was silent with regard to dispute resolution.
In 2009, Jenks sued the firm on claims of bad faith, breach of contract, promissory fraud and constructive fraud. DLA Piper, he claimed, had “undervalued” his short-term disability benefits by computing them based on “artificially reduced salary figures.”
Novation Claim
The firm moved to compel arbitration, which Jenks opposed on the grounds that the termination agreement was a novation, extinguishing the prior agreement to arbitrate. He also argued that if the arbitration agreement were still in effect, it did not apply to claims regarding the benefits plan.
A judge rejected both arguments and ordered arbitration. The arbitrator, after 11 hearing days, awarded Jenks $41,000 for lost benefits and $45,000 for emotional distress, but rejected all other claims.
The parties then skirmished in state and federal courts, with Jenks seeking to confirm the portion of the award that favored him and vacate or modify the portion favoring DLA Piper. The firm sought to confirm the entire award.
Eventually, a federal district judge ruled that there was no federal jurisdiction, while a superior court judge sided with the law firm.
Justice Robert Dondero, writing for the Court of Appeal, said the award was properly confirmed.
He agreed with the trial judge that Jenks, having argued only his novation and non-arbitrability theories in opposition to the petition to compel, could not argue a new theory—that DLA Piper was a non-signatory and therefore could not enforce the agreement—after the award was rendered.
Loses on Merits
The jurist went on to say that even if the argument had not been forfeited, it would fail on the merits. He cited Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, holding that an employee of a company that acquired his previous employer remained bound by the arbitration agreement he had entered into with the predecessor company.
Dondero also rejected the argument that employment contracts are not “property” and therefore rights under those contracts do not pass to the surviving entity after a merger, either under the laws of California or those of Maryland, where DLA Piper is organized as a limited liability partnership.
The justice said the statutes of both states are consistent with the Marenco result.
He cited a Maryland statute providing that upon merger, the successor acquires all property “or other assets” of the predecessor. “It is not unreasonable to construe a partnership’s contractual rights as ‘assets,’” he wrote.
California Corporations Code §16914(a)(1) “is even clearer” on the issue, Dondero said, because it provides that upon merger “the surviving partnership...shall succeed, without other transfer, act, or deed, to all the rights and property” of each of the prior entities.
The justice also rejected the non-arbitrability and novation arguments that were rejected in opposition to the petition to compel.
Arbitrability Issue
Jenks argued that disability benefits claims were outside the scope of arbitration because a document describing the plan, published after he left the firm, acknowledged the right of beneficiaries to sue in federal court. Dondero, however, said the relevance of the document was “questionable,” given the timing of its publication, and that the reference to litigation appears limited to ERISA claims.
The justice also concluded that the termination letter did not supersede the agreement to arbitrate set forth in the letter offering Jenks his employment. He noted that the termination agreement was silent as to arbitration, and that its integration clause was explicitly limited to “the subject matter hereof,” meaning the terms of Jenks’s resignation.
He distinguished Grey v. American Management Services (2012) 204 Cal.App.4th 803, holding that an employment agreement containing an integration clause superseded an arbitration provision that the plaintiff agreed to when he applied for the job. The integration clause in that case, Dondero noted, did not contain a limitation to “the subject matter hereof,” but broadly constituted “the entire agreement between the parties in connection with” the plaintiff’s employment.
The case is Jenks v. DLA Piper Rudnick Gray Cary US LLP, A143990.
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