Arbitration: Existence Of Agreement/1281.2/Stay: Incorporation By Reference Works This Time, But It's Not The End Of The Story

Settlement Agreement Incorporated Arbitration Clause In Licensing Agreement -- But Only Claims Arising Out Of Or In Connection With Any Provision In The Licensing Agreement Could Be Arbitrated.

        On February 9, 2018, we posted about Cirile v. Petersen-Dean, an unpublished case, in which incorporation by reference was too amorphous and vague to incorporate an arbitration provision in a separate agreement.  In Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC, G054671 (4/3  2/21/18) (Thompson, O'Leary, Ikola) (unpublished), incorporation by reference did work -- sort of.

        In Advanced Charging Technologies, a Settlement Agreement entered into one day after a Licensing Agreement, and including an integration clause, incorporated the terms and conditions of the Licensing Agreement.  And the Licensing Agreement included an arbitration provision applying to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement.  The trial court denied a motion to compel arbitration, believing that the integration clause wiped out the Licensing Agreement, an argument rejected by the Court of Appeal, because the successful incorporation by reference preserved the terms of the Licensing Agreement.  The trial court also believed that the arbitration clause, which only applied to the disputes arising out of the Licensing Agreement, was too narrow to cover disputes arising out of the Settlement Agreement, a position that did have some traction in the Court of Appeal.

        The upshot is that Court of Appeal reversed and remanded, with directions to grant the motion to compel arbitration, and set up a three-step process.  First, the trial court had to decide whether the claims arose out of or  in connection with the License Agreement that was incorporated by reference.  Second, the trial court had to determine whether the resolution of "any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2."  And finally, the trial court was directed to order any appropriate stay order.