Adamany v. LA Super. Ct.

Filed 7/25/02 Adamany v. Superior Court CA2/4
NOT TO BE PUBLISHED
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
HENRY ADAMANY, JR.,
Petitioner,
v.
THE SUPERIOR COURT OF LOS
ANGELES COUNTY,
Respondent;
BENY ALAGEM et al.,
Real Parties in Interest.
No. B156220
(Super. Ct. No. BC252626)
ORIGINAL PROCEEDING in mandate. Richard C. Hubbell, Judge. Writ
conditionally granted.
John H. Upton for Petitioner.
No appearance for Respondent.
Rosoff, Schiffres & Barta and H. Steven Schiffres for Real Parties in
Interest.
_______________________

-- 1 of 9 --

2
Henry Adamany, Jr. challenges an order by the trial court compelling
arbitration of his action against his former employer, AST Computers, LLC (AST)
and Beny Alagem, alleged to be an owner of AST. We conclude that Adamany is
estopped from denying the applicability of the arbitration clause because he has
sued on the written contract which contained the clause, and that real parties in
interest have ratified the contract by petitioning to compel arbitration under its
provisions. We also conclude the punitive damages limitation in the arbitration
clause is severable, but that the cost sharing provision is unenforceable. We
therefore shall grant the relief sought unless real parties commit to meeting those
expenses.
FACTUAL AND PROCEDURAL SUMMARY
According to the allegations of the first amended complaint, in early 2000,
Adamany was a highly compensated executive and partner in the Orange County
office of PricewaterhouseCoopers. He was approached at that time by a recruiter
acting on behalf of Beny Alagem. Alagem represented that he wanted petitioner to
join Vault Technologies, an existing company that was going to move to Orange
County to accommodate Adamany. Alagem was personally financing Vault and
was committed to making it a viable business. Adamany was told that he would be
the chief executive officer of Vault and would have full management of strategy,
marketing, sales, expenditure and personnel.
The complaint alleges that Adamany and Alagem orally agreed that
Adamany would leave his current employment and join Vault. The terms were
that Adamany would receive a base salary of $300,000, annual bonuses of up to
$300,000 with $120,000 of that guaranteed, a hiring bonus of $50,000, and, upon
termination without good cause, a severance benefit of $150,000 to be personally
paid by Alagem. Adamany also was to have stock options.

-- 2 of 9 --

3
In reliance on this oral agreement, Adamany resigned his position at
PricewaterhouseCoopers. On June 19, 2000, Alagem sent him an e-mail agreeing
to guarantee the severance package. A copy of this e-mail is attached and
incorporated into the complaint as Exhibit A.
In late June 2000, Adamany received a written employment agreement from
AST Computers, LLC (incorporated by reference and attached to the complaint as
Exh. B). The agreement was not signed.
It contains an arbitration clause: “Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration in
Los Angeles, California, in accordance with the employment rules of the American
Arbitration Association then in effect by an arbitrator selected by both parties
within 10 days after either party has notified the other in writing that it desires a
dispute between them to be settled by arbitration. . . . Each party shall pay its own
expenses associated with such arbitration, including the expense of any arbitrator
selected by such party and the Company will pay the expenses of the jointly
selected arbitrator. The decision of the arbitrator shall be binding upon the parties
and judgment in accordance with that decision may be entered in any court having
jurisdiction thereover. Punitive damages shall not be awarded.”
After resigning from his employment at PricewaterhouseCoopers, Adamany
learned that Vault was not a separate entity. Alagem told him that he owned AST,
that AST owned technology essential to the Vault venture, that Alagem intended to
spin-off the AST technology into a company to be formed and called Vault, and
that Adamany would be an employee of AST until Vault was formed. Adamany
alleges that Alagem failed to disclose that AST was partially owned by a third
party and that Alagem did not have authority to spin-off the AST technology to
form Vault without the other owner’s approval.

-- 3 of 9 --

4
Adamany began his employment with AST in July 2000. He was not paid
the promised signing bonus. He was told that, because of a provision relating to
stock options, the written employment agreement could not be executed until Vault
was formed. Adamany alleges that there was an implied in fact contract between
the parties incorporating the terms contained in the written agreement. On October
16, 2000, real parties in interest terminated Adamany. He was owed the hiring
bonus, monies due under the written agreement, and a severance benefit.
Adamany sued Alagem and AST in superior court. His first amended
complaint, the charging pleading, alleges causes of action for fraud, negligent
misrepresentation, willful failure to pay wages and breach of contract. Real parties
in interest petitioned to compel arbitration. Their petition asserted: “This Petition
is made upon the grounds that all the purported claims asserted by plaintiff in the
First Amended Complaint filed herein are all premised upon a written
‘Employment Agreement’ attached hereto as Exhibit 1. Same provides for
arbitration of the dispute which is the subject of this action.” Like the written
agreement attached to the first amended complaint, this copy of the written
agreement was unsigned. Real parties also alleged that the claims asserted in the
first amended complaint “‘arise under or in connection with’ [Adamany’s] alleged
employment” by real parties and thus fall within the arbitration clause of the
agreement. Real parties also asserted that their right to compel arbitration had not
been waived; rather that they had “consistently asserted that inasmuch as
[Adamany] pleads claims for relief premised on said writing, then the exclusive
arbitration provision therein controls, even if, as [real parties allege], said writing is
ultimately held to be unenforceable.”
In their petition to compel arbitration, real parties reserved all defenses,
including the defense that the unsigned writing is not binding, is unenforceable,
and does not memorialize the terms of Adamany’s employment.

-- 4 of 9 --

5
Adamany opposed the petition to compel arbitration, denying that the
arbitration clause is controlling. He argued that the unsigned Agreement is
enforceable, but that real parties had denied ever entering into the agreement.
Adamany asserted: “[Real parties in interest] can not [sic] contend that it never
entered into the Agreement containing the arbitration clause and simultaneously
seek to enforce the arbitration clause.” In addition, Adamany argued that the
arbitration clause is not enforceable because it violates public policy by precluding
him from seeking punitive damages, citing Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz). In response, real
parties argued that Adamany could not “cherry-pick” the provisions of the
agreement by seeking relief based on the agreement but denying the enforceability
of the arbitration clause.
The trial court granted the petition to compel arbitration. It found: “that an
agreement to arbitrate the controversy exists.” It also ruled that Armendariz does
not apply. Adamany filed a petition for writ of mandate with this court. We issued
an order to show cause, and a stay on March 8, 2002.
DISCUSSION
I
The primary issue in this proceeding is whether there was an enforceable
agreement to arbitrate, since the employment agreement was not signed by either
party.
Code of Civil Procedure section 1281 provides: “A written agreement to
submit to arbitration an existing controversy or a controversy thereafter arising is
valid, enforceable and irrevocable, save upon such grounds as exist for the
revocation of any contract.” (Emphasis added; all statutory references are to the
Code of Civil Procedure.) Section 1280, subdivision (f) provides that a “‘Written

-- 5 of 9 --

6
agreement’ shall be deemed to include a written agreement which has been
extended or renewed by an oral or implied agreement.”
“‘“On petition of a party to an arbitration agreement alleging the existence
of a written agreement to arbitrate a controversy . . . , the court shall order the
petitioner and the respondent to arbitrate the controversy if it determines that an
agreement to arbitrate the controversy exists . . . .” . . . Thus, “[t]he right to
arbitration depends upon contract; a petition to compel arbitration is simply a suit
in equity seeking specific performance of that contract. [Citations.]” . . . There is
no public policy in favor of forcing arbitration of issues the parties have not agreed
to arbitrate. [Citation.] It follows that when presented with a petition to compel
arbitration, the trial court’s first task is to determine whether the parties have in
fact agreed to arbitrate the dispute. [¶] We apply general California contract law
to determine whether the parties formed a valid agreement to arbitrate.
[Citations.]’” (Romo v. Y-3 Holdings, Inc. (2001) 87 Cal.App.4th 1153, 1158,
quoting Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock
Investment Co. (1998) 68 Cal.App.4th 83, 88-89, italics added by Marcus &
Millichap.)
Adamany and real parties take inconsistent positions on the enforceability of
the contract and the arbitration clause. Adamany sues to enforce the unsigned
written agreement, but denies the validity of the arbitration clause it contains. Real
parties deny the existence of the agreement, but petition to enforce the arbitration
clause. Neither side can have it both ways.
Under principles of judicial estoppel, once Adamany sued on the contract, he
was estopped from maintaining, that as an unsigned writing, the arbitration clause
it contains is unenforceable. (See International Billing Services, Inc. v. Emigh
(2000) 84 Cal.App.4th 1175, 1188-1191 [party’s claim for attorney’s fees based on
breach of contract judicially estops that party from contending the provision does

-- 6 of 9 --

7
not authorize an award of fees]; Berman v. Renart Sportswear Corp. (1963) 222
Cal.App.2d 385.)
Real parties are estopped from denying the existence of the agreement sued
on because they petitioned to enforce the arbitration clause in the written
agreement. (See Kurinij v. Hanna & Morton (1997) 55 Cal.App.4th 853, 870-871;
c.f. Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348.)
We conclude that the parties agreed to arbitrate the claims between them.
The next question is whether the language in the arbitration clause precluding an
award of punitive damages renders the clause unenforceable.
II
Adamany also argues that the arbitration provision is unenforceable because
it contravenes public policy, relying on Armendariz v. Foundation Health
Psychcare Services, Inc., supra, 24 Cal.4th 83. He relies on two aspects of the
arbitration clause for this argument: the prohibition on an award of punitive
damages, and the sharing of costs of arbitration. In Armendariz, our Supreme
Court held that an arbitration agreement may not limit statutorily imposed
remedies, such as punitive damages under the Fair Employment and Housing Act
(Gov. Code, § 12965). (Id. at pp. 103-104.) But the claim for punitive damages
here is based on a common law cause of action for fraud. Although Adamany’s
lawsuit alleges a statutory cause of action for willful failure to pay wages under
Labor Code section 200 et seq., he does not seek punitive damages for that claim.
Armendariz therefore does not apply.
In a supplemental brief, Adamany argues that the arbitration provision is
unenforceable under Armendariz because it requires him to share the costs of
arbitration. The clause states: “Each party shall pay its own expenses associated
with such arbitration, including the expense of any arbitrator selected by such party
and the Company will pay the expenses of the jointly selected arbitrator.” In

-- 7 of 9 --

8
Armendariz, the Supreme Court held that an arbitration agreement may not require
the employee to bear any type of expense that the employee would not be required
to bear if he or she brought the action in court. (Armendariz, supra, 24 Cal.4th at
pp. 110-111; see also Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 181-
182.) We agree that the fee-sharing provision of the arbitration clause violates this
principle and cannot be enforced.
The issue becomes whether this unenforceable aspect of the arbitration
agreement may be severed, allowing arbitration. In Armendariz, the Supreme
Court explained the standard for determining whether an unconscionable provision
is severable: “Courts are to look to the various purposes of the contract. If the
central purpose of the contract is tainted with illegality, then the contract as a
whole cannot be enforced. If the illegality is collateral to the main purpose of the
contract, and the illegal provision can be extirpated from the contract by means of
severance or restriction, then such severance and restriction are appropriate.”
(Armendariz, supra, 24 Cal.4th at p. 124.)
The language barring an award of punitive damages appears at the end of the
arbitration clause and, absent parol or other evidence on the point (there is none), is
severable because its purpose is collateral to the purposes of the contract as a
whole. But the cost-sharing provision of the clause is not severable and hence not
enforceable, unless real parties in interest agree to bear the costs of arbitration in
accordance with the principle expressed in Armendariz, supra, 24 Cal.4th at pages
110-111. They should have the opportunity to do so.
DISPOSITION
The petition for writ of mandate is granted and the trial court is directed to
vacate its order granting the petition to arbitrate and to issue a new and different
order denying the petition to arbitrate, unless, within 30 days of the filing of this

-- 8 of 9 --

9
opinion, real parties in interest file written confirmation with the trial court
agreeing to bear the costs of the arbitration in accordance with Armendariz, supra,
24 Cal.4th at pages 110-111, including, in particular, payment of fees and costs of
the arbitration. The parties are to bear their own costs in this writ proceeding.
NOT TO BE PUBLISHED.
EPSTEIN, J.
We concur:
VOGEL (C.S.), P.J.
HASTINGS, J.

-- 9 of 9 --