Court Opinion

ID: 4027304
Source: CourtListenerOpinion
Date Created: 2016-08-22 22:02:29.171253+00
Date Added: 2024-06-11T09:21:48.662823
License: Public Domain

Filed 8/22/16 Corn v. Superior Court CA2/5

                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION FIVE

POE CORN,                                                            B270867

         Petitioner,                                                 (Super. Ct. No. BC592007)

         v.

THE SUPERIOR COURT OF LOS
ANGELES COUNTY,

         Respondent;

JOEL FREEDMAN, et al.,

         Real Parties in Interest.

         ORIGINAL PROCEEDINGS in mandate. Amy D. Hogue, Judge. Petition
granted.
         Ervin Cohen & Jessup, Randall S. Leff and Russell M. Selmont, for Petitioner.
         No appearance for Respondent.
         Buchalter Nemer, Efrat M. Cogan, Michael L. Wachtell, and Carol K. Lucas, for
Real Parties in Interest Joel Freedman, Mark Bell, and James MacPherson.
         Grodsky & Olecki, Allen B. Grodsky and John Metzidis-Drennan, for Real Parties
in Interest Avanti Healthcare Holdings, LLC and Avanti Hospitals, LLC.
      Raskin Gorham Anderson Law, Gary J. Gorham, for Real Parties in Interest
Paladin Healthcare Capital, LLC and Paladin-Avanti Management, LLC.
       Petitioner Poe Corn (petitioner) is a member and former CEO of Avanti
Healthcare Holdings (Avanti Holdings), a limited liability company established to own
and operate four Los Angeles-area hospitals. Petitioner is the former CEO because in
2012, other members of Avanti Holdings—Joel Freedman, James MacPherson, and, via a
company he controlled, Mark Bell (collectively, the Individual Defendants)—ousted him
from the position. In connection with his ouster and subsequent threats to sue, petitioner
and Avanti Holdings, including its subsidiaries, entered into a settlement agreement.
Three years later, in a derivative capacity on behalf of Avanti Holdings and one of its
subsidiaries, petitioner sued the Individual Defendants and two companies affiliated with
                               1
them (the Paladin Defendants) alleging they breached fiduciary duties and committed
other acts of corporate malfeasance. Relying on a settlement agreement provision in
which “[t]he Parties agree[d] to arbitrate any disputes,” the trial court entered an order
compelling petitioner to arbitrate his derivative claims. We consider whether the order
compelling arbitration of the derivative claims petitioner brought on behalf of Avanti
Holdings and its subsidiary against the Individual and Paladin Defendants, who were not
parties to the settlement agreement, must be reversed.

                                    I. BACKGROUND
       A.     Factual Summary
       Avanti Holdings is a Nevada limited liability company in which petitioner holds a
29.41 percent membership interest. The company’s other members are Hollister Health
Holdings, LLC (Hollister), of which Individual Defendant Mark Bell (Bell) is the sole
member and manager; Joel Freedman (Freedman); James MacPherson (MacPherson);
and Nick Orzano. Avanti Holdings is managed by a board of managers comprised of
petitioner, MacPherson, and Bell. Its wholly owned subsidiary Avanti Hospitals, also a
Nevada limited liability company, is likewise managed by petitioner, MacPherson, and

1
       The Paladin Defendants are Paladin Healthcare Capital, LLC (Paladin Capital) and
Paladin-Avanti Management, LLC (Paladin Management).

                                              3
Bell. Although petitioner was terminated in January 2012 from his position as CEO of
Avanti Holdings, he retained his membership interest in the entity and continued to serve
as a manager of that entity and of Avanti Hospitals.
       Approximately five months after he was removed as CEO, on May 29, 2012,
petitioner entered into a confidential letter settlement agreement (the Letter Agreement)
with Avanti Holdings. To be more precise, the paragraph at the outset of the agreement
defined the “Parties” to the agreement as petitioner on the one hand and Avanti Holdings
                                                                             2
and its various subsidiaries (collectively, the Avanti Entities) on the other. Under the
terms of the agreement, the Avanti Entities agreed to pay petitioner certain immediate
and future sums of money in exchange for his promise to assist in resolving certain
litigation, to present any concerns about company compliance issues to a third party
under specified guidelines, to support the sale or recapitalization of the Avanti Entities,
and to work in their best interests. Paragraph nine of the Letter Agreement, titled
“Resolution of Disputes,” is central to the resolution of this appeal and comprises only
seven words: “The Parties agree to arbitrate any disputes.”
       In addition to defining the “Parties” and including a provision by which the parties
agreed to arbitrate any disputes, the Letter Agreement incorporated a mutual general
release (the Release) agreed to by a broader group of entities and individuals. Among the
individuals and entities that were named as parties to the Release—but not the Letter

2
       We quote the relevant paragraph in full: “This Confidential Letter Agreement
(‘Agreement’) sets forth the binding agreement between Avanti Healthcare Holdings,
LLC (including each of its subsidiaries, Avanti Hospitals, LLC, Avanti Hospital Holdings
I, LLC, Avanti Hospitals Holdings II, LLC, HealthPlus+ Holdings, LLC, Gardena
Hospital Management, LLC, Gardena Hospital, L.P., MHG Hospital Properties, LLC,
ELADH Management, LLC, ELADH, L.P., ELADH Hospital Properties, LLC, CPH
Hospital Management, LLC, CPH Hospital Properties, LLC, CHHP Management, LLC,
CHHP Holdings II, LLC, collectively ‘Avanti’) and Poe D. Corn (‘Corn’), (collectively,
the ‘Parties’).”

                                              4
                                                       3
Agreement itself—were the Individual Defendants. By executing the Release, the
parties thereto released each other from all claims of any kind, known or unknown, which
each might have against the other “as of the Effective Date [of the Release], or which
[might] hereafter arise out of, relate to, or be connected with [Avanti Holdings] or the
operation of its business” apart from “obligations arising after the Effective Date.” The
Release included a dispute resolution provision that specified: “[a]ny claim, dispute or
controversy among the Parties arising out of, or relating to, this Release shall be settled
on an expedited basis by binding arbitration in California before a single arbitrator
mutually agreeable to the Parties.” The Letter Agreement and Release both provided
they were to be governed by California law.
       In June 2015, Avanti Hospitals entered into an agreement (the Management
Agreement) with Paladin Management. Pursuant to the Management Agreement, Avanti
Hospitals agreed to pay Paladin Management for providing administrative and
management services to Avanti Hospitals’ facilities. The Management Agreement also
outlined a specific procedure for “any dispute, controversy or claim arising” thereunder:
If the parties failed to initially resolve their dispute by meetings of management or with
the assistance of a third-party consultant, the dispute would be “settled by binding
arbitration, in California, before a single, mutually agreeable arbitrator . . . .”

3
       Again, we quote the pertinent language in the Release in full: “THIS MUTUAL
GENERAL RELEASE (this ‘Mutual General Release’) is made and entered into as of
this ___ day of May, 2012 (the ‘Effective Date’), between Avanti Healthcare Holdings,
LLC, a Nevada limited liability company (the ‘Company’), Hollister Health Holdings,
LLC, a California limited liability company (‘Hollister’), Mark Bell, M.D., an Individual
and Mark R. Bell Medical Corporation, a California professional medical corporation
(collectively ‘Bell’), Irv Edwards, M.D., an Individual and Irv Edwards, M.D., Inc., a
California professional medical corporation (collectively ‘Irv Edwards’), Emergent
Medical Associates, a California partnership (‘EMA’), James Edwards (‘James
Edwards’), an Individual, Joel Freedman (‘Freedman’), an Individual, James MacPherson
(‘MacPherson’), an Individual, and Nick Orzano (‘Orzano’), an Individual (collectively
the ‘Avanti Parties’) on the one hand, and Poe D. Corn (‘Corn’), on the other hand
(collectively, the ‘Parties’).”

                                                5
         B.     Procedural History
         Petitioner sued the Individual and Paladin Defendants, both directly in his personal
capacity and derivatively on behalf of Avanti Holdings and Avanti Hospitals, in August
     4
2015. Petitioner’s complaint alleged the Individual Defendants, who controlled Avanti
Holdings, Avanti Hospitals, and the Paladin Defendants, had caused Avanti Hospitals and
Paladin Management to enter into the Management Agreement in violation of special
approval procedures for self-interested transactions that were prescribed by the operating
agreements for Avanti Holdings and Avanti Hospitals. Petitioner claimed the Individual
Defendants contrived the Management Agreement as a means to unlawfully divert funds
from Avanti Hospitals into a company the Individual Defendants controlled to the
exclusion of petitioner, i.e., Paladin Management. He asserted claims for breach of
fiduciary duty, abuse of control, waste of corporate assets, unjust enrichment, and breach
of contract against the Individual Defendants, and claims of aiding and abetting breach of
fiduciary duty and intentional interference with contract against the Paladin Defendants.
Petitioner also sought rescission of the Management Agreement. Consistent with regular

4
        In 2013, petitioner in his direct capacity sued Avanti Holdings, Avanti Hospitals,
Hollister, Freedman, Bell, MacPherson, and John Ferrelli (who is not a party to the
current action) for breach of fiduciary duty, breach of the covenant of good faith and fair
dealing, gross negligence and breach of the duty of care, and declaratory and injunctive
relief. Petitioner alleged those defendants mismanaged Avanti Holdings and its
subsidiaries and failed to comply with the companies’ governing documents, corporate
law, and healthcare regulations, thereby subjecting petitioner to personal financial losses
and exposure to third-party liability. The trial court concluded the arbitration provision in
the Letter Agreement applied to the parties’ dispute and granted a motion by the
defendants in that case (except for Ferrelli) to compel the arbitration of petitioner’s
claims. The court found the arbitration provision’s reference to “any disputes” was used
“in the context of significant disagreements between [petitioner] and Defendants over the
proper management of Avanti” and petitioner’s claims “[went] directly to the same sorts
of disputes with Defendants over their management of Avanti (including, but not limited
to their legal or ‘compliance’ obligations) that gave rise to [petitioner’s] ouster as CEO
and the [Letter Agreement] in the first place.” Petitioner’s 2013 complaint is currently
pending in arbitration.

                                              6
practice for lawsuits brought in a derivative capacity, he named Avanti Holdings and
Avanti Hospitals as nominal defendants.
       Avanti Holdings and Avanti Hospitals, joined by the Individual Defendants and
expressly unopposed by the Paladin Defendants, moved to compel arbitration of all
claims in petitioner’s lawsuit. They contended the Letter Agreement’s broad arbitration
provision mandated arbitration of the direct and derivative causes of action and that the
Individual Defendants could rely on the arbitration provision despite not being
signatories to the Letter Agreement under an agency theory.
       Petitioner opposed the motion to compel, arguing (1) his claims were outside the
scope of the arbitration provision in the Letter Agreement, (2) the Letter Agreement,
which was between petitioner in his individual capacity and the Avanti Entities, did not
apply to petitioner’s derivative claims, in which petitioner was merely a nominal party
acting on behalf of Avanti Holdings and Avanti Hospitals, the real plaintiffs in interest,
(3) defendants could not rely on the agreement because the Avanti Entities had not
performed their obligations thereunder, and (4) there were no arbitration agreements
between petitioner and the Individual or Paladin Defendants.
       At a hearing on the motion to compel arbitration, petitioner did not vigorously
contest the issue of whether his direct claims (i.e., those brought in his personal capacity
directly against the Individual and Paladin Defendants) must be arbitrated. He instead
focused his efforts on convincing the trial court his derivative claims should not be
compelled to arbitration. Petitioner argued that because derivative claims belong to the
company in whose right relief is sought and not to the individual bringing them,
petitioner’s suit on behalf of Avanti Holdings and Avanti Hospitals gave him “no greater
and no less rights than the company would have had the company initiated the lawsuit
itself.” Petitioner, therefore, contended he had no capacity to “sign away [the Avanti
Holdings and Avanti Hospitals’] right [to sue]” when executing the Letter Agreement. In
petitioner’s view, because Avanti Holdings and Avanti Hospitals never agreed to arbitrate
claims of malfeasance against the Individual Defendants, petitioner acting on behalf of
Avanti Holdings and Avanti Hospitals could not be compelled to arbitrate such claims.

                                              7
The Letter Agreement, in petitioner’s view, was therefore irrelevant to whether he could
prosecute his derivative claims in court.
       The trial court construed the Letter Agreement differently, concluding that
petitioner “forfeited his standing” or “bargained away his right” to initiate a suit in court
against the Avanti Entities, in whatever capacity, when he signed the agreement. The
court also emphasized, in the face of petitioner’s arguments to the contrary, that
petitioner’s ability to bring a derivative action “would defeat the intention of the parties”
in signing the Letter Agreement and that resolution of his direct and derivative claims in
different fora might result in inconsistent relief.
       The court accordingly granted defendants’ motion to compel arbitration of all
petitioner’s claims, both direct and derivative. The court found petitioner “failed to
demonstrate that his latest claims [were] outside the scope of the arbitration agreement,”
agreeing with the analysis of the trial judge in the separate but related 2013 action who
concluded petitioner’s causes of action in that lawsuit were encompassed by the
arbitration provision in the Letter Agreement. (See fn. 4, ante.) The trial court’s written
ruling in this matter did not specifically address petitioner’s arguments regarding the
arbitrability of his derivative claims except to state the arbitration provision was “broad
enough to encompass any dispute initiated by [petitioner] in any capacity, including the
‘derivative’ claims alleged in his complaint.” The court also ruled the Individual and
Paladin Defendants could compel arbitration of petitioner’s claims against them, even
though they were not signatories to the Letter Agreement, because petitioner’s claims
against them were “based upon and intertwined with a contract containing an arbitration
              5
agreement.”

5
       Defendants argued at the motion to compel hearing that the Management
Agreement between Avanti Hospitals and Paladin Management independently required
petitioner’s derivative claims against the Paladin Defendants to be arbitrated, but the
court concluded that issue was not properly before it and therefore declined to consider
the argument.

                                               8
        Petitioner then filed a petition for writ of mandate in this court, urging us to direct
the trial court to deny defendants’ motion to compel arbitration solely as to petitioner’s
                   6
derivative claims. As he did in the trial court, petitioner argued the Letter Agreement
was inapplicable to his derivative claims because such claims were property rights of
Avanti Holdings and Avanti Hospitals, the real plaintiffs in interest, as opposed to
petitioner, a shareholder suing to enforce the entities’ rights because the Individual
Defendants, who controlled Avanti Holdings, would never sue themselves. Petitioner
contended there was no agreement that compelled Avanti Holdings or Avanti Hospitals to
arbitrate claims against the Individual Defendants, and so the trial court could not compel
petitioner, in his capacity as a representative of those entities, to arbitrate such claims.
Petitioner additionally argued, among other things, that the Management Agreement did
not justify compelling arbitration of his claims against the Paladin Defendants, an issue
the trial court declined to consider, because the Management Agreement itself was void
and petitioner’s claims were outside the ambit of its arbitration provision.
        We issued an alternative writ ordering the trial court to vacate its order compelling
arbitration or to show cause why we should not issue a peremptory writ of mandate
requiring it to do so. The trial court did not vacate its order, and having considered
further briefing by the parties, we now address whether cause exists to issue a peremptory
writ.

                                      II. DISCUSSION
        According to the Individual and Paladin Defendants (hereinafter “defendants,” for
simplicity’s sake), when petitioner agreed “to arbitrate any disputes” with the Avanti
Entities, he thereby agreed to arbitrate any derivative claims brought on their behalf.
Defendants also contend that the nature of petitioner’s claims relate to the Letter
Agreement, which addressed the proper management of Avanti Holdings and its

6
        Petitioner does not seek reversal of the trial court’s order compelling arbitration of
his direct claims.

                                               9
subsidiaries. Defendants further argue they may compel arbitration of petitioner’s claims
against them despite being non-signatories to the Letter Agreement because (1) those
claims are closely intertwined with the claims requiring arbitration, (2) Paladin
Management may independently compel arbitration pursuant to the Management
Agreement, and (3) the Individual Defendants should be deemed identical to the Paladin
Defendants based on petitioner’s allegations that the Individual Defendants functioned as
alter egos of the Paladin Defendants.
       We hold petitioner is not required to arbitrate his derivative claims against
defendants because the language of the Letter Agreement does not provide for arbitration
of derivative claims brought by petitioner on behalf of the Avanti Entities. We also
decline to address the parties’ contentions regarding the Management Agreement,
directing instead that these issues should be addressed on remand after further
development as necessary.

       A.     Standard of Review
       An order compelling arbitration may be reviewed by way of a petition for a writ of
mandate. (Garcia v. Superior Court (2015) 236 Cal.App.4th 1138, 1149.) To the extent
a trial court’s decision interprets a contract without regard to conflicting extrinsic
evidence, our review is de novo. (Jenks v. DLA Piper Rudnick Gray Cary U.S. LLP
(2015) 243 Cal.App.4th 1, 8 (Jenks).) We will uphold any resolution of disputed facts by
a trial court if supported by substantial evidence. (Suh v. Superior Court (2010) 181
Cal.App.4th 1504, 1511 (Suh).)
       Here, the trial court considered extrinsic evidence to conclude the Letter
Agreement remained in effect but otherwise rendered its decision solely on the basis of
its interpretation of the agreement itself. Because petitioner does not ask us to examine
whether the Letter Agreement remains in force, the only question before us is the proper
interpretation of that agreement. We decide that question de novo.

                                              10
       B.     Analysis
              1.     General legal principles
       Unless prohibited by its operating agreement or articles of incorporation, a
member of a Nevada limited liability company may bring a derivative action on the
company’s behalf, alleging claims that arose while the plaintiff was a member, if other
members or managers of the company are unlikely to initiate such action themselves.
(Nev. Rev. Stats. §§ 86.483, 86.485.) In this case, defendants do not argue petitioner
lacks the ability to bring a derivative action under the operating agreements for Avanti
Holdings and Avanti Hospitals or otherwise. (Cf. Long v. Silver (4th Cir. 2001) 248 F.3d
309, 319 [terms of agreements at issue affected whether the plaintiff had a right to pursue
a shareholder derivative action].)
       Under California law, “[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.” (Code Civ. Proc., §
1281.) A court may order arbitration against a party opposing it where the court
determines (1) “an agreement to arbitrate the controversy exists,” (2) the party seeking
arbitration has not waived its right to compel it, (3) there are no grounds to revoke the
arbitration agreement, and (4) no party to the arbitration agreement is also a party to a
pending action with a third party that arises out of the same transaction or series of
transactions and thereby raises a possibility of conflicting rulings. (Code Civ. Proc., §
1281.2.)
       California public policy strongly favors arbitration, and “‘doubts concerning the
scope of arbitrable issues are to be resolved in favor of arbitration. [Citations.]’
[Citation.]” (Suh, supra, 181 Cal.App.4th at p. 1512.) Arbitration remains, however, a
matter of contract. Thus, the policy favoring arbitration does not supplant a court’s initial
duty to determine whether parties have actually agreed to arbitrate a dispute, applying
general principles of contract law. (Pinnacle Museum Tower Assn. v. Pinnacle Market
Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle); see also BG Group, PLC
v. Republic of Argentina (2014) ___ U.S. ___ [134 S.Ct. 1198, 1206] [courts presume

                                              11
parties intend courts to decide disputes about arbitrability, including “‘whether the parties
are bound by a given arbitration clause,’ or ‘whether an arbitration clause in a concededly
binding contract applies to a particular type of controversy’”]; Granite Rock Co. v.
Internat. Brotherhood of Teamsters (2010) 561 U.S. 287, 299-300 [arbitration “‘is a way
to resolve those disputes—but only those disputes—that the parties have agreed to submit
to arbitration’”].)
       Arbitration agreements are “on equal footing with all other contracts” (Buckeye
Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 443) and, as such, must be
interpreted to effectuate the parties’ intent. “The party seeking arbitration bears the
burden of proving the existence of an arbitration agreement, and the party opposing
arbitration bears the burden of proving any defense . . . .” (Pinnacle, supra, 55 Cal.4th at
p. 236.) Once the party seeking to arbitrate establishes the existence of an arbitration
agreement, the presumption in favor of arbitrability will render such agreement
enforceable “‘“unless it may be said with positive assurance that the arbitration
[provision] is not susceptible of an interpretation that covers the asserted dispute.”’
[Citations.]” (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143
Cal.App.4th 761, 771 (Gravillis).)

               2.     The Letter Agreement
       The language of the Letter Agreement unambiguously states, “[t]he Parties agree
to arbitrate any disputes,” with “Parties” defined as petitioner on the one hand and Avanti
Holdings and its subsidiaries on the other. Derivative claims, however, are not between
the Parties but between the Avanti Entities and the party against whom the derivative
lawsuit is brought.
       It is well established that the initiator of a derivative suit “stands in the shoes” of
the company whose rights such person seeks to enforce, and “[t]he causes of action do
not belong to him, but to [the company].” (Frederick v. First Union Securities, Inc.
(2002) 100 Cal.App.4th 694, 697; accord, e.g., Kamen v. Kemper Financial Services, Inc.
(1991) 500 U.S. 90, 95 [“The derivative form of action permits an individual shareholder

                                              12
to bring ‘suit to enforce a corporate cause of action against officers, directors, and third
parties,’”], italics in original; In re Zoran Corp. Derivative Litigation (N.D. Cal. 2007)
511 F.Supp.2d 986, 1011 [“In a derivative action, however, the true plaintiff is the
corporation; the shareholders bringing the action merely stand in the corporation’s
shoes”]; Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1003 [corporation is the
“real party plaintiff” in derivative action] (Patrick); McDermott, Will & Emery v.
Superior Court (2000) 83 Cal.App.4th 378, 383 [“In holding a shareholder derivative
action not to be tantamount to an assignment, we have reasoned that shareholders in such
an action essentially ‘stand in the shoes’ of the corporation”]; Friedman et al., Cal.
Practice Guide: Corporations (The Rutter Guide 2015) 6:664 [“As stated above, a
derivative suit cause of action belongs to the corporation, and the shareholders merely
‘stand in the corporation’s shoes’”].) If petitioner succeeds in his derivative suit, Avanti
Holdings and Avanti Hospitals are “the only party that benefits from any recovery; the
shareholders derive no benefit ‘“except the indirect benefit resulting from a realization
upon the corporation’s assets.”’ [Citation.]” (Grosset v. Wenaas (2008) 42 Cal.4th 1100,
1108.) Despite being the real party plaintiff in practice, the corporation must nonetheless
be joined as a nominal defendant because it is an indispensable party “‘[whose] rights,
not those of the nominal plaintiff, are to be litigated.’ [Citation.]” (Patrick, supra, 167
Cal.App.4th 995 at p. 1004; accord, Ontiveros v. Constable (2016) 245 Cal.App.4th 686,
692, fn. 2.)
       Thus, the derivative claims at issue in petitioner’s lawsuit are not effectively
between him personally and the Avanti parties, but rather between Avanti Holdings and
Avanti Hospitals on the one hand and the Individual and Paladin Defendants on the other.
And it is this difference that compels us to conclude there is no valid agreement to
arbitrate the derivative claims. Under the Letter Agreement, only the “Parties” are
obligated to arbitrate any disputes, and the dispute presented by the derivative claims is
not a dispute among the Parties as defined in that agreement—petitioner is effectively
absent from the derivative dispute, and defendants who were not parties to the agreement
are present.

                                             13
        Defendants counter that an individual is capable of waiving his or her right to
bring a derivative action, but we see nothing in the Letter Agreement to indicate
petitioner did so in this case. Defendants’ reliance on a Delaware case, Elf Atochem
North America, Inc. v. Jaffari (1999) 727 A.2d 286 (Elf), is therefore unavailing. In Elf,
three parties created a limited liability company whose operating agreement provided that
“[n]o action at law or in equity based upon any claim arising out of or related to this
Agreement shall be instituted in any court by any Member . . . .” (Id. at p. 294, fn. 42.)
The company’s members entered into the operating agreement; the company itself was
not a signatory. (Id. at p. 288.) One of the members brought a derivative action against
another and argued the arbitration provision in the operating agreement did not apply to
the action because it was brought on behalf of the company, which was not a party to the
agreement. (Id. at p. 289.) The Delaware Supreme Court held the arbitration provision
applied to the derivative suit because the member entity that initiated the suit “contracted
away its right to bring such an action” when it signed the operating agreement. (Id. at p.
294.)
        Elf is inapposite here because the arbitration provision in that case, unlike this one,
contained language reasonably suggesting it encompassed both derivative and direct
claims. The arbitration provision in Elf applied to “any claim . . . instituted . . . by any
Member.” (Id. at p. 294, fn. 42, emphasis added.) The word “instituted” expanded the
ambit of the provision beyond claims merely between the parties to the agreement to any
claims instituted by a party. (Id. at p. 294 [arbitration provision did not “distinguish
between direct and derivative claims” and “simply state[d] that the members may not
initiate any claims outside of California”].)
        The language, and the effect, of the arbitration provision in the Letter Agreement
is different. The provision at issue here states “[t]he Parties agree to arbitrate any
disputes.” It includes no language, as there was in Elf, that the parties agreed to arbitrate
any claims initiated by them, in whatever capacity. Nor does the language of the
arbitration provision suggest the parties intended to bind themselves to resolving any
disputes with an unnamed third party via arbitration. Rather, the arbitration provision we

                                                14
confront is naturally and best read to mean petitioner and the Avanti Entities agreed to
                                                        7
arbitrate any future disputes that arose between them. The Avanti Entities’ own return
filed in this matter, which refers to “Corn’s agreement with Avanti” and “Corn’s
agreement to arbitrate any dispute he may have with Avanti” (emphasis ours), confirms
this is the correct reading. Indeed, the commonly accepted purpose of a settlement
agreement is to settle a dispute or disputes that have arisen or may yet arise between the
parties thereto; it would be unusual for such an agreement to impose obligations on one
of its signatories as to disputes with a third party, and we see nothing in the text of the
Letter Agreement that reflects the parties intended to forever bargain away the right to
resort to the courts should they ever have a dispute with someone not a party to that
             8
agreement.

7
        The Letter Agreement also followed the termination of petitioner’s employment,
and it contains no indication petitioner signed it in anything but his personal capacity.
(Cf. Benasra v. Marciano (2001) 92 Cal.App.4th 987 [arbitration agreement signed by
plaintiff in his corporate capacity did not apply to plaintiff’s personal libel claim];
Daniels v. Sunrise Senior Living, Inc. (2013) 212 Cal.App.4th 674 [arbitration agreement
signed by plaintiff in her capacity as attorney-in-fact did not apply to plaintiff’s personal
wrongful death claim].)
8
        Moreover, keeping in mind the well-established “stand-in-the-shoes” principle for
derivative claims reveals petitioner and the Avanti Entities cannot have intended the
Letter Agreement’s arbitration provision to require arbitration of derivative claims. We
believe even defendants would concede the arbitration provision was at least intended
(and perhaps primarily intended) to require arbitration of disputes arising between
petitioner and the Avanti Entities. But if that is true, and if the arbitration provision were
meant to apply to derivative claims, that would mean the parties intended the provision to
apply to disputes Avanti Holdings and Avanti Hospitals might have with themselves.
There is unquestionably a strong public policy in favor of arbitration, but that public
policy cannot be invoked to justify such an odd understanding of the parties’ intent, one
that is not in any way compelled by the text they chose. (See, e.g., Securitas Security
Services USA, Inc. v. Superior Court (2015) 234 Cal.App.4th 1109, 1125 [“The parties’
contractual intent is paramount in deciding the outcome of [a] motion to compel
arbitration and [a] writ proceeding, for the ‘overarching principle [is] that arbitration is a
matter of contract’ and ‘courts must “rigorously enforce” arbitration agreements
according to their terms’ [citations]”]; see also Civ. Code, § 1639 [when a contract is

                                              15
            The distinction between the parties to the Letter Agreement (petitioner and Avanti
Holdings and its subsidiaries) and the parties to the contemporaneously signed release
(petitioner, Avanti Holdings, the Individual Defendants, and others) reinforces our
understanding of the Letter Agreement’s arbitration provision. Defendants argue that
those among them who signed the Release should also be deemed “parties” under the
Letter Agreement because the Letter Agreement expressly incorporates the Release. That
argument disregards the express distinctions between the two documents in how they
define the “parties” to each. If all of the relevant individuals and entities intended to
provide for arbitration of “all disputes” among themselves, they could have done so.
That they did not, despite entering the Letter Agreement and Release contemporaneously,
indicates they did not intend for all of them to be bound by the terms of the Letter
Agreement.
            Again, that is not to say that petitioner was categorically incapable of contracting
away his right to bring a derivative suit, only that doing so would have required different
language in the Letter Agreement. (Cf. Elf, supra, 727 A.2d at p. 294, fn. 42.) Based on
the language before us, the arbitration provision “‘“is not susceptible of an interpretation
that covers the asserted dispute.”’ [Citations.]” (Gravillis, supra, 143 Cal.App.4th at p.
        9
771.)
            In fact, we find the matter before us closer to Trover v. 419 OCR, Inc. (Ill. 2010)
921 N.E.2d 1249 (Trover), than to Elf. In Trover, a member of a limited liability
company brought a derivative action on the company’s behalf against two fellow
members of the company as well as two outside parties. (Id. at p. 1252.) The members

reduced to writing the intention of the parties is to be ascertained from the writing alone,
if possible].)
9
       Defendants do not argue that the Release itself compels arbitration of petitioner’s
derivative claims. At most, they contend it supports a finding that the Individual
Defendants, who were not signatories to the Letter Agreement, should nonetheless be
allowed to rely on that agreement to compel arbitration. Because we conclude the Letter
Agreement does not mandate arbitration of petitioner’s derivative claims, we do not
consider the Release.

                                                  16
of the company had signed an operating agreement that required arbitration of “‘[a]ny
controversy, dispute[,] or claim between the parties arising out of, related to [,] or in
connection with [the] Agreement or the performance or breach [t]hereof . . . .’” (Id. at p.
1253.) The company itself was not a signatory to the agreement. (Id. at p. 1254.) The
Illinois appellate court found that even though the arbitration provision reached the
subject of the derivative claims, it did not apply to the action because the company on
whose behalf the claims were brought was not a party to the agreement. (Id. at p. 1255;
see also Mission Residential, LLC v. Triple Net Properties, LLC (Va. 2008) 654 S.E.2d
888 [arbitration provision in limited liability company operating agreement signed by
members did not apply to derivative suit brought by one member on behalf of non-
signatory company against another member].) While Avanti Holdings and Avanti
Hospitals, the functional plaintiffs in interest in this case, were parties to the Letter
Agreement, the fact remains that that agreement was not made with the defendants in the
derivative action. Thus, the Letter Agreement established no consent to arbitrate claims
between the “real” plaintiffs in interest and the defendants in the derivative action.
       We also conclude petitioner is not required to arbitrate derivative claims under an
equitable estoppel theory, which is an exception to the general rule prohibiting non-
signatories to an arbitration agreement from invoking the agreement to compel
arbitration. “Under that doctrine, as applied in ‘both federal and California decisional
authority, a nonsignatory defendant may invoke an arbitration clause to compel a
signatory plaintiff to arbitrate its claims when the causes of action against the
nonsignatory are “intimately founded in and intertwined” with the underlying contract
obligations.’ [Citations.] ‘By relying on contract terms in a claim against a nonsignatory
defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating
the arbitration clause contained in that agreement.’ [Citations.] ‘The rule applies to
prevent parties from trifling with their contractual obligations.’ [Citation.]” (JSM
Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237; see also Metalclad
Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th
1705, 1713 [equitable estoppel may obligate a signatory plaintiff to arbitrate claims

                                               17
against non-signatory defendants where plaintiff’s claims are inseparable from claims
that are “‘“based on the same facts and inherently inseparable”’ from arbitrable claims
against signatory defendants”].)
       Equitable estoppel does not apply to petitioner’s derivative claims because there
are no arbitrable derivative claims against signatory defendants. As we have already
explained, the Letter Agreement’s arbitration provision is naturally read to require
arbitration of any disputes between petitioner and the Avanti Entities. Even if defendants
could invoke the arbitration provision under an estoppel theory it would do them no
good; we can and do say with positive assurance that the claims at issue they seek to
arbitrate (petitioner’s derivative claims) are not within the scope of the arbitration
provision.
       Furthermore, petitioner’s derivative claims are not based on and intertwined with
the underlying Letter Agreement obligations in any event. Petitioner’s derivative claims
advance allegations that the Individual Defendants breached the terms of Avanti
Holdings’ and Avanti Hospitals’ operating agreements when they entered into the
Management Agreement with Paladin Management in 2015, thereby harming Avanti
Holdings and Avanti Hospitals irrespective of any independent, personal harm to
petitioner. These allegations are not “dependent upon, or inextricably bound up with”
(Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 229-230) obligations created by
the Letter Agreement’s settlement of claims between petitioner and the Avanti Entities
following his termination of employment.

              3.     The Management Agreement
       The trial court did not consider whether the Management Agreement, which
required Avanti Hospitals and Paladin Management to arbitrate disputes between
themselves arising under the agreement, independently compelled arbitration of any or all
of petitioner’s derivative claims. The parties nevertheless argue in this writ proceeding
before us that the agreement’s arbitration provision does or does not apply to petitioner’s
claims. Defendants contend petitioner is bound by the agreement in his derivative

                                              18
capacity because Avanti Hospitals, one of the real plaintiffs in interest, is so bound and
because petitioner’s claims arise under the agreement. Petitioner argues the arbitration
provision in the agreement is inapplicable because the “crux of the derivative claim is
that the [Individual Defendants] needed [petitioner’s] consent to enter into the
[Management Agreement]. Petitioner never gave his consent, so the [Individual
Defendants] had no authority to bind [Avanti Holdings and Avanti Hospitals] to the
[Management Agreement]. This in turn renders the [Management Agreement] void and
the dispute is thus not subject to arbitration . . . .” Petitioner further argues that if the
Management Agreement is not void, the derivative claims nevertheless fall outside the
scope of its arbitration provision.
       Whether or not a contract was validly formed, which “bear[s] on the threshold
issue of arbitrability,” may well turn on the resolution of issues of fact, issues that the
trial court is better positioned to address in the first instance. (City of Vista v. Sutro &
Co. (1997) 52 Cal.App.4th 401, 407.) Because the trial court in this case did not consider
the validity of the Management Agreement, which may depend at least in part on
resolution of questions of fact, the appropriate course of action is to remand and give the
trial court the opportunity to do just that, taking further evidence and resolving material
                                 10
factual disputes as necessary.

10
        Should the trial court deny defendants’ motion to compel arbitration on remand,
nothing we say in this opinion should be construed to express a view on whether further
proceedings should be stayed pursuant to Code of Civil Procedure section 1281.2. That
is a determination for the trial court to make in the first instance, if requested by a party.

                                               19
                                           DISPOSITION
       The petition is granted. Let a writ of mandate issue ordering respondent court to
vacate its order compelling arbitration of petitioner’s derivative claims and to issue a new
and different order consistent with the views expressed in this opinion and its further
determination of whether the derivative claims instituted by petitioner against Paladin-
Avanti Management LLC must be arbitrated under the Management Agreement and, if
so, whether petitioner’s remaining derivative claims are so intertwined with that
agreement as to justify arbitration of all of petitioner’s claims.
       Petitioner shall recover his costs on appeal.

                NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                    BAKER, J.
I concur:

                      
       RAPHAEL, J.


        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

                                              20
TURNER, P.J., Dissenting

       I would deny the petition. In my view, the shareholder derivative claims are
subject to the three arbitration clauses given their language’s expansive nature. (Long v.
Silver (4th Cir. 2001) 248 F.3d 309, 313-314, 316-317, 319 [agreement to arbitrate “‘any
dispute arising out of or relating to this Agreement’” extends to shareholder’s derivative
claims].)