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CALIFORNIA CORPORATE & SECURITIES LAW

Court Decides Successor In Merger May Enforce Arbitration Clause

Can a party to written agreement that does not include an arbitration clause enforce an arbitration provision in another agreement to which it is not a party?  Boiled down to the essentials, this is the question decided yesterday by the Court of Appeal in Jenks v. DLA Piper Rudnick Gray Cary US LLP, Cal. Ct. of Appeal Case No. A143990 (Dec. 16, 2015).  The Court’s holding that a nonsignatory party can enforce the arbitration provision is less surprising under the facts of the case.

The plaintiff, M. Todd Jenks, was hired by Gray Cary Ware & Friedenrich (Gray Cary).  His offer letter included an arbitration clause.  Gray Cary subsequently merged into DLA Piper.  Thereafter, DLA Piper and Mr. Jenks signed a termination agreement that made no mention of arbitration.  Over two years later, Mr. Jenks sued DLA Piper, alleging four causes of action.  DLA succeeded in persuading the trial court to order arbitration.  Although the arbitrator returned an award for Mr. Jenks, he decided to appeal the trial court’s entry of judgment in conformity with the arbitration award.

The Court of Appeal, in an opinion by Justice Robert L. Dondero, found that DLA Piper had standing to enforce the arbitration agreement in the offer letter even though it was not a party based on Marenco v. DirecTV, 233 Cal. App. 4th 1409 (2015).  The Court, citing California Corporations Code § 16914 and Maryland law, also found that DLA Piper succeeded by operation of law to Gray Cary’s contract rights.  Next, the Court found that Gray Cary’s offer letter had not been modified and was not superseded by DLA Piper’s termination letter, notwithstanding an integration clause in the termination letter.  In this case, integration was expressly limited to the “subject matter hereof”, i.e., the terms of Mr. Jenks’ resignation.

While the Court of Appeal’s opinion makes interesting reading, it does raise one significant question.  Why did the Court bother to write it at all?  At the outset, the Court held that Mr. Jenks had forfeited his argument that DLA Piper as a nonsignatory could not enforce the arbitration agreement.  When a team forfeits a game, they don’t go ahead and play the game.  It’s simply game over.  In this case, the Court’s analysis, however illuminating, would appear to be just dicta.

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