Majority
This is an appeal by Twentieth Century-Fox Film Corporation (Fox) and other defendants[1] from an order denying a petition to compel arbitration in a lawsuit brought by plaintiffs Fess Parker and Areola Pictures Corporation, alleging 11 causes of action arising out of a joint venture between Fespar Enterprises, Inc. (Fespar),[2] Areola Pictures Corporation (Areola) and Fox.
Facts
Effective April 15, 1964, Parker, Areola and Fox entered into a written joint venture agreement (joint venture) known as “The American Tradition Company” to produce, distribute and otherwise exploit a film television series entitled “Daniel Boone.” Areola agreed to furnish the executive producer of the series or such other person as the parties mutually designated. Parker agreed to engage in his name and for the benefit of the joint venture the continuing series players, writers, directors and other production personnel. Fox agreed to furnish all financing (except to the extent the parties made a capital contribution to the venture) for the production of the series. Fox also agreed to furnish facilities, services and personnel located at Fox’s studios or elsewhere as might be required in connection with the production of the episode and the series.
All net profits derived from the sale, lease, license or other exploitation of the series were to be divided as follows: Parker 40 percent, Areola 26 2/3 percent and Fox 33 1/3 percent.
The joint venture provided that net profits were to be computed by Fox based upon broadcast years and Areola’s and Parker’s shares were to be distributed by Fox within 90 days following the end of each broadcast year so long as the series was distributed on a syndication ba
1 Twentieth Century-Fox Television, Inc. was consolidated into Twentieth Century-Fox Film Corporation on or about April 3, 1968. Twentieth Century-Fox Film Corporation became successor in interest to and assignee of Fox-TV. The other defendants in the action, who are not parties to this appeal, are Zieglar-Ross Agency, a California corporation and Zieglar-Ross Agency, Inc., a California Corporation (Zieglar-Ross).
2 In 1973, all rights, title and interest in Fespar, a corporation, were assigned to Fess Parker. The original joint venture agreement giving rise to the present litigation was entered into in 1964 between Areola, Fespar and Fox-TV. Due to the subsequent assignments of interest and for the purposes of simplicity we will combine and refer to these various entities as Parker, Areola and Fox.
The joint venture also provided that Fox would keep accurate records of gross receipts received for the series and the negative cost, distribution expenses, and distribution fees incurred in connection therewith. Areola and/or Parker could, upon request, have an independent certified public accountant make examinations of such accounts and records if necessary to verify the accuracy of any statement submitted.
The complaint containing 11 causes of action is 65 pages in length. Only a brief summary of each cause of action is necessary for purposes of this opinion.
The first cause of action is for usury. Fox, under the joint venture, was required to loan Parker and Areola moneys at 6 percent interest per year, however, it is alleged Fox charged plaintiffs in excess of 10 percent per annum on advances and loans.
The third cause of action is for fraud by a fiduciary (Fox) and contains several separate specifications. Briefly, the principal charges were that Fox structured the joint venture so that the realization of “net profits’’ was unlikely; Fox fraudulently misrepresented to Parker and Areola that loans and advances to the joint venture were much greater than actually made; Fox paid “sales commissions” prematurely as a result of a secret and undisclosed and unauthorized settlement of a purported dispute in connection with the series.
The fourth cause of action is for breach of contract by a fiduciary. Numerous specific breaches are alleged. One in particular claims that Fox improperly engaged in the production, syndication and distribution of a “spin-off” television series entitled “Young Dan’l Boone” which violated the agreement.
The fifth cause of action is for imposition of a constructive trust. It is alleged that Parker and Areola, relying on the representations of Fox, transferred to the exclusive possession and control of Fox the negatives of each and every one of the 165 one-hour episodes of the Daniel Boone series. Fox received an estimated sum of $38,068,878 from the series which included a sum in excess of $7,787,795 fraudulently held by Fox as its profits. Parker and Areola seek a constructive trust against this latter sum.
The sixth cause of action is for rescission and restitution and contains the usual allegations for such a cause of action. Parker and Areola offer to restore all considerations received by them under the contract on condition that Fox restore to them the original negatives, prints, etc. of the 165 episodes of the Daniel Boone series.
The seventh cause of action is for dissolution of the joint venture and repeats all of the allegations of the previous causes of actions and concludes that the violations of the agreement alleged therein are such as to warrant dissolution of the joint venture.
The eighth cause of action is for an accounting of the “net profits” that exceeded $412,731.
The 10th cause of action is by Parker against Fox for inducing a breach of the agency contract with Zieglar-Ross.
The 11th and final cause of action is by Parker against ZieglarRoss for fraud.
Discussion
It is true, as Fox states, that it has long been the policy in California to favor arbitration as a means of providing a summary disposition of controversies. (Lewsadder v. Mitchum, Jones & Temple-ton, Inc. (1973) 36 Cal.App.3d 255 , 259 [ 111 Cal.Rptr. 405 ].) However, arbitration is based on a contractual agreement to arbitrate and therefore the courts must look to the wording and the scope of the arbitration clause in the parties’ contract to determine its application. (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473 , 479 [ 121 Cal.Rptr. 477 , 535 P.2d 341 ], citing O’Malley v. Wilshire Oil Co. (1963) 59 Cal.2d 482 , 490 [ 30 Cal.Rptr. 452 , 381 P.2d 188 ].) Here the trial court was required to ascertain whether the paragraph requiring a CPA to settle controversies connected with receipts and disbursements, was indeed a contractual agreement to arbitrate, and if so, its scope and application to issues raised by the complaint. The court’s determination is found in certain key findings which we paraphrase and summarize as follows:
(1) The first two causes of action (usury and declaratory relief) are not subject to arbitration (this is conceded by Fox).
(2) The ninth and eleventh causes of action are against a third party (Fox concedes these two causes are not subject to arbitration).
(3) There are other issues between Fox, Parker, Areola and a third party that are not subject to arbitration.
(4) The third and sixth causes of action (fraud and rescission) constitute grounds for revocation of the agreement.
(6) Fox’s verified answer alleges the joint venture has dissolved according to its own terms.
(7) The scope of the arbitration clause is far too narrow to encompass the issues. Certain issues involve financial issues but the causes of action go beyond mere financial questions which are not readily severable. Arbitration of any financial questions will not facilitate resolutions of the remaining issues.
The determination of this case is guided primarily by a very basic rule on appeal, namely, if there is substantial evidence to support the findings of the trial court we must affirm. Parker and Areola concede that there are issues in the complaint, which if standing alone, could be determined by the CPA. However, they contend the trial court was correct in refusing to order arbitration because many of the key issues can only be decided by a court of law. They interpret the court’s denial as requiring the matter to proceed to trial in the superior court where the judge will control the procedures necessary to decide the multitude of issues. If an accounting is necessary, the judge may appoint a CPA (if the parties cannot agree) or the judge may take advantage of the clause in question and have the American Arbitration Association pick the CPA.
Fox also agrees that some issues must be determined by the court, but maintains the principal issues will be decided by an accounting, therefore the entire proceeding should commence with arbitration and if the certified public accountant does not resolve all the controversies, then the court can pick up the remaining pieces.[3]
This is not the typical arbitration case where the right to arbitrate or not arbitrate is generally found in the arbitration clause of the parties’ written agreement. Indeed, Parker and Areola argue it is not even an arbitration clause (the word “arbitration” is not used, except in con
3 Fox, by an eight-page footnote to its opening brief makes lengthy quotations from two letters between the parties’ counsel a few years before the complaint was filed. While these letters discussed accounting problems and requested detailed information on sales, receipts, etc., they do not, and could not, in light of the complaint establish that the controversies could be determined by a CPA.
Most arbitration clauses found in the contracts between parties seek to resolve any and all issues of controversy arising out of the contract.[4] The arbitration clause here states: “In case any controversy shall arise . . . with respect to the receipts and proceeds from the distribution of the series or the expenses pertaining thereto, the questions in controversy shall be submitted for determination to certified public accountants in the City of Los Angeles .. . and if the parties cannot agree upon such accountants, then such Los Angeles firm of certified public accountants as shall be designated by the American Arbitration Association . .. . ” The controversies subject to arbitration are restricted to receipts and proceeds and expenses pertaining to distribution of the series. Fox claims the trial court should have given the wording of the paragraph a much broader meaning. Fox states: “Failing agreement on disputes by exercise of the unilateral audit right, the arbitration clause functions, in essence, as a ‘super-audit,’ with certified public accountants designated as arbitrators, to resolve such disputes between the parties.” And in this same context Fox contends it is not the responsibility of the trial court to determine which issues are subject to “arbitrability” but that this is the accountants responsibility.[5]
We do not agree with Fox that the agreement gives to the accountant broad power to determine which issues are arbitrable. In
4 lt is inlercsting to note that the American Arbitration Association is named in the arbitration paragraph. The only authority however that the association has is to appoint a Los Angeles firm of certified public accountants. The association’s proposed arbitration clause in existence at the time the present joint venture was negotiated was quite similar to the normal arbitration clause found in most contracts. It stated: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, and judgment upon the Award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof.” (Italics added.) (See Johnson, Preparation of Arbitrations Before the American Arbitration Association (1964) 39 L.A. Bar Bull. 384, 385.) For some reason this clause was not used in the joint venture agreement thus lending credence to the trial court’s determination that the parties intended a very limited form of arbitration.
5 Fox claims Parker and Areola should not be allowed to avoid arbitration just because they allege so many diverse issues because this will encourage such allegations by future plaintiffs who seek to escape arbitration. Not so, Fox could have avoided this problem by using an arbitration clause similar to the clause in footnote 4, ante.
In our present case the agreement is silent on the accountant’s authority to determine what issues are or are not arbitrable. Interestingly, Fox characterizes the paragraph in question as establishing a “super-audit.” While we disagree that a super-audit was intended, even this description does not make the paragraph in question a broad arbitration clause. Audits are not very discretionary or elastic in nature, but are subject to standardized procedural rules. Not only could the parties disagree, and probably would, on the various issues in question, but it is probable that the accountant would be concerned with his authority to rule on the myriad issues raised by the complaint in view of the limited language of the clause. Judicial determination of the jurisdiction and scope of the accounting will be required.
The trial court’s conclusion in finding 7 (supra) that the scope of the arbitration clause is far too narrow to encompass the issues is a clear finding that the parties did not agree to arbitrate most controversies alleged in the complaint. As stated earlier, we are not dealing with the usual, all-inclusive arbitration clause. The trial court did not accept
The chief issue in this case is whether the trial court has the discretion to order all issues raised in a plaintiffs complaint tried in a court of law when some of the issues are covered by an arbitration agreement.
Code of Civil Procedure section 1281.2,[7] subdivision (c) supplies the answer. It provides in pertinent part: “If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action
6 Contrary to Fox’s contention it seems quite likely that a winding-up of the joint venture will be required. This can only be accomplished under court supervision. See Smith v. Superior Court, supra, 202 Cal.App.2d 128 , where, at page 132, the court stated: “The agreement herein fails to provide, as between the parties, any specific manner for the winding up of the business. Likewise, it contains no specific provisions entrusting to an arbitrator the matter of dissolution, or delineating the mechanics to be employed to effect a winding up of the business and a distribution of assets by him."
7 Code of Civil Procedure section 1281.2 provides: “On petition of a parly to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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, unless it determines that: “(a) The right to compel arbitration has been waived by the petitioner; or “(b) Grounds exist for the revocation of the agreement. “(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295. “If the court determines that a written agreement to arbitrate a controversy exists, an order to arbitrate such controversy may not be refused on the ground that the petitioner’s contentions lack substantive merit. “If the court determines that there are other issues between the petitioner and the re *906 spondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies. “If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”
Except as modified above, the order is affirmed and respondents to receive costs of appeal.
Kaus, P. J., and Stephens, J., concurred.
Appellants’ petition for a hearing by the Supreme Court was denied July 1, 1981.
8 Parker and Areola argued that the trial court could, if it wished, disregard the accounting clause and appoint its own accountant for the same purpose.
Cases cited
- Lewsadder v. Mitchum, Jones & Templeton, Inc. 36 Cal.App.3d 255 at 259 p. 901
- Freeman v. State Farm Mutual Automobile Insurance 14 Cal.3d 473 at 479, at 480 p. 901, p. 904
- O'Malley v. Wilshire Oil Co. 59 Cal.2d 482 at 490 p. 901
- Smith v. Superior Court 202 Cal.App.2d 128 p. 904
- J. H. Pomeroy & Co. v. Soulé Steel Co. 156 Cal.App.2d 691 at 693 p. 904