Unreported / Non-Citable
Background
Kerlan-Jobe Orthopaedic Clinic and Cedars Sinai Medical Care Foundation entered into three related agreements in 2014: a physicians' services agreement, a purchase agreement, and a service mark license agreement. The service agreement had an initial ten-year term ending September 30, 2024, with automatic one-year renewals unless terminated with 18 months' notice. In March 2023, Cedars gave notice of its intent not to renew after the initial term. The parties subsequently entered into an extension dated September 30, 2024, which extended the termination date from October 1, 2024, to November 1, 2024, and recited that Cedars was negotiating with Santa Monica Orthopaedic and Sports Medicine Group (SMOG) to include Kerlan-Jobe shareholders.
In January 2025, Kerlan-Jobe, two of its physician shareholders (Drs. Kharrazi and Kvitne), and related entities sued Cedars, several Cedars executives, Dr. Bert Mandelbaum, and SMOG, alleging 19 causes of action including civil conspiracy, retaliation, unfair competition, interference with prospective economic advantage, breach of contract, and various statutory violations. Plaintiffs characterized the service agreement as effecting a 'de facto merger' and alleged defendants conspired to drain Kerlan-Jobe of its talent and transfer its assets. Defendants moved to compel arbitration of all claims pursuant to arbitration provisions in the three 2014 agreements. The trial court ordered only the breach of contract and breach of implied covenant claims (causes of action 12 and 13) to arbitration and stayed all other claims. All defendants appealed.
The Court’s Holding
The Court of Appeal first addressed whether the parties had delegated arbitrability questions to the arbitrator. Although the agreements incorporated JAMS rules, including rule 11(b) which assigns arbitrability questions to the arbitrator, the court held this did not constitute the required 'clear and unmistakable' delegation. The service agreement's severability provision, which expressly contemplated that a court might find provisions unenforceable, created ambiguity about who decides arbitrability. Because the three agreements were drafted as part of the same transaction, this ambiguity precluded finding clear delegation in any of them.
The court then held that nonsignatory defendants (the individual Cedars executives, Dr. Mandelbaum, and SMOG) could enforce the arbitration provisions, and nonsignatory plaintiffs (Drs. Kharrazi and Kvitne) were bound by them, under the doctrine of equitable estoppel. The individual plaintiffs sought the benefits of the service agreement by claiming entitlement to access and services under it, and many claims against nonsignatory defendants depended on alleged breaches of the agreements.
Examining each cause of action, the court held that 13 of the 17 claims not already ordered to arbitration fell within the scope of the arbitration provisions because they relied on interpretation of the service agreement or license agreement. These included civil conspiracy, retaliation, unfair competition, interference with prospective economic advantage, trademark dilution, conversion, unjust enrichment, and injunctive and declaratory relief. Four causes of action—aiding and abetting breach of fiduciary duty, violation of Business and Professions Code section 650, violation of the Cartwright Act, and tortious interference with contractual relations—fell outside the arbitration provisions because they concerned defendants' interactions with other Kerlan-Jobe physicians and mentioned the agreements only for context. The disposition directs the trial court to grant the motion to compel arbitration as to the first, third through fifth, eighth, and tenth through nineteenth causes of action, totaling 15 causes of action.
Key Takeaways
- Incorporation of JAMS rules delegating arbitrability to the arbitrator does not constitute 'clear and unmistakable' delegation when another provision in the agreement, such as a severability clause, expressly contemplates a court deciding enforceability questions.
- When multiple agreements are drafted as part of a single transaction, ambiguity in one agreement's delegation provision can preclude finding clear delegation in related agreements under Civil Code section 1642.
- Nonsignatory plaintiffs who claim benefits under a contract containing an arbitration clause may be compelled to arbitrate claims relying on that contract under equitable estoppel, even against nonsignatory defendants.
- Nonsignatory defendants may enforce arbitration provisions against signatory plaintiffs when the claims against them are dependent upon or inextricably intertwined with the underlying contractual obligations.
- Determining whether statutory and tort claims fall within an arbitration provision requires close examination of whether the claims rely on interpretation of the contract or merely reference it for context.
Why It Matters
This decision provides guidance on the 'clear and unmistakable' standard for delegating arbitrability questions to arbitrators under California law, emphasizing that incorporation of arbitration rules alone may be insufficient when other contract provisions create ambiguity about the court's role. The court's analysis of equitable estoppel in the context of complex business relationships involving multiple signatories and nonsignatories illustrates how courts determine who can be compelled to arbitrate and who can enforce arbitration provisions.
The opinion also demonstrates the claim-by-claim analysis required to determine the scope of arbitration provisions, distinguishing between claims that depend on contract interpretation and those that merely reference contractual relationships as background. The court vacated the trial court's order and remanded with directions to grant the motion to compel arbitration as to the first, third through fifth, eighth, and tenth through nineteenth causes of action, while denying arbitration of the remaining claims.