California Appeals Court Affirms Denial of Petition to Compel Arbitration

The California Fourth District Court of Appeal has affirmed an order denying a petition to compel arbitration of claims against a cardiologist who signed an attorney-client agreement in his role as the sole managing agent of a physician investment group, holding that the agreement’s mandatory arbitration clause did not apply to the cardiologist individually, even though he was guarantor of payment to the law firm. Shook Partners Frank Rothrock, Marc Miles and Of Counsel Kristy Schlesinger represented Dr. Anil Shah, the managing agent of Orange County Physician Investment Network (OCPIN) against a lawsuit filed by the law firm of Hari S. Lal involving monetary claims of more than $7 million.

Lal and his law firm argued on appeal that Shah was a third-party beneficiary of the professional services agreement because of his dual status as the sole manager of OCPIN and the personal guarantor of its legal bills. The appeal court disagreed, holding that a party cannot be compelled to arbitrate a dispute that he or she has not agreed to resolve by arbitration, and that there was no evidence that Shah agreed to do so in any individual capacity. Under California law, the court said, an individual signing an arbitration agreement as a representative of an entity is not personally subject to arbitration absent exceptional circumstances. The agreement’s provision that Shah would guarantee payment “imposes a personal obligation upon Shah,” the court said, but the plaintiffs failed to show “how this provision confers an individual benefit on Shah sufficient to impose the arbitration provision against him as a third-party beneficiary.”

The court also rejected the plaintiffs’ argument that a preexisting relationship between a party to an agreement and a nonsignatory can confer power on the party to bind the nonsignatory to its terms, noting that Shah and Lal had been best friends for 20 years. The court said the plaintiffs were not arguing that Shah’s relationship to OCPIN bound him to arbitration, but instead that his friendship with Lal gave the plaintiffs the authority to compel Shah to arbitrate any claims they had against him. “Plaintiffs misapprehend the nature of the preexisting relationship exception,” the court said. “Neither the factual circumstances of this case nor the law supports the determination that plaintiffs could unilaterally bind Shah to such an arbitration agreement.”

The case is Lal v. Shah, No. G053190 (Cal. App. Ct., non-published opinion filed November 20, 2017).