DJO, LLC v. MioMED ORTHOPAEDICS, INC.

No. D070009.

DJO, LLC, Plaintiff, Cross-defendant and Respondent, v. MIOMED ORTHOPAEDICS, INC., Defendant, Cross-complainant and Appellant.

Court of Appeals of California, Fourth District, Division One.


Attorney(s) appearing for the Case

Williams Iagmin and Jon R. Williams for Defendant, Cross-complainant and Appellant.

Tyson & Mendes, Robert F. Tyson, Jr. , Jacob Felderman and Kelly Denham for Plaintiff, Cross-defendant and Respondent.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

BENKE, Acting P. J.

In this arbitration case, we affirm the trial court's order affirming an arbitration award in favor of plaintiff, cross-defendant and respondent DJO, LLC (DJO) and dismissing as untimely defendant, cross-complainant and appellant MioMed Orthopaedics, Inc.'s (MioMed) underlying breach of contract claims. In particular, we find that, although the arbitration took place as the result of an order compelling arbitration entered in an action initiated in Illinois state court, the trial court had jurisdiction to consider DJO's petition to confirm the arbitrator's award. We also find the arbitrator's award was not the result of any misconduct, act in excess of the powers provided to the arbitrator, or the arbitrator's failure to hear material evidence.

FACTUAL AND PROCEDURAL BACKGROUND

A. Parties' Agreement

DJO is based in California and designs and manufactures medical devices used to assist patients recovering from surgery. MioMed is an Illinois medical device sales company. In 2002, DJO and MioMed entered into a distributorship agreement under which MioMed became DJO's independent sales representative in Illinois and Indiana. The parties initially agreed to a term of four years, but later, by amendment, extended the term of the distributorship agreement.

In particular, the distributorship agreement provided that any disputes between the parties would be governed under California law and would be resolved by way of arbitration; the parties further agreed that any arbitration would take place in San Diego, California and that, notwithstanding the arbitration agreement, the parties could seek equitable or injunctive relief either in the United State District Court for the Southern District of California or in state courts in San Diego.

B. Illinois Litigation

In May 2008, DJO notified MioMed that it was terminating the distributorship agreement as of June 6, 2008. Thereafter, the parties negotiated with respect to a number of disputes and the possibility MioMed would merge with another DJO distributor. Those negotiations were unsuccessful.

On June 26, 2009, MioMed filed a complaint against DJO in the circuit court of Cook County, Illinois for, among other matters, breach of contract. In particular, MioMed alleged that DJO owed it a $750,000 termination fee.

DJO appeared in the Illinois action and promptly moved to compel arbitration of MioMed's claims. On June 10, 2010, the Illinois trial court granted DJO's motion to compel with respect to two of the three claims set forth in MioMed's complaint. The Illinois court stayed further proceedings with respect to the two arbitrable claims and ordered DJO to answer with respect to the third claim. The parties attempted to resolve their claims over the next four years.

C. Arbitration

Although DJO's alleged breach of contract occurred in 2008, when the distributorship agreement ended and the alleged termination fee was not paid, and although DJO's motion to compel arbitration was granted in 2010, MioMed made no attempt to have its claims against DJO arbitrated until July 24, 2014, at which point it served DJO with a demand for arbitration.

The parties agreed to an arbitrator, who issued a discovery and scheduling order, which required that any motion for summary judgment be heard no later than July 17, 2015 and set a hearing on any matters not resolved by summary judgment for September 9, 2015.1 DJO submitted a motion for summary judgment, which among other matters, argued MioMed had waived its right to arbitrate its claims and that, in any event, its 2014 demand for arbitration was barred by the statute of limitations. With respect to the statute of limitations, DJO argued the Illinois complaint did not toll the statute of limitations because it was not the forum permitted by the distribution agreement. DJO argued that only a complaint filed in California would meet the requirements of the distribution agreement and that the arbitration demand itself was filed two years after the statute of limitations had expired.

The arbitrator heard telephonic argument and granted DJO's motion. The arbitrator found MioMed's 2008 Illinois complaint for breach of contract did not toll the statute of limitations. In particular, the arbitrator relied on the provision of the arbitration clause which stated that arbitration of any claims was a "condition precedent" to the parties' right to bring any civil action and determined the Illinois action was not a substitute for filing an arbitration demand.

MioMed then moved for reconsideration of the arbitrator's award and argued the "condition precedent" issue had not been raised in DJO's motion for summary judgment. MioMed further argued DJO's Illinois motion to compel satisfied the requirement that arbitration be exhausted before legal action could be initiated. DJO objected to the motion to reconsider, and the arbitrator denied the motion.

D. Confirmation

On October 15, 2015, DJO filed a petition to confirm the arbitrator's award in the San Diego Superior Court.

MioMed responded by way of a cross-motion to stay or, in the alternative, vacate the arbitrator's award. MioMed argued confirmation of the award should be determined in Cook County Circuit Court, where MioMed argued the arbitration had been initiated; in the alternative, MioMed argued that the award should not be confirmed because the arbitrator acted improperly in basing his ruling on the "condition precedent" language in the parties' agreement.

The trial court granted DJO's petition to confirm the arbitrator's award on December 1, 2015.2

The trial court entered judgment in DJO's favor on April 18, 2016.

I

Contrary to MioMed's first argument on appeal, the trial court had jurisdiction3 to determine the merits of DJO's petition to confirm the arbitrator's award. Code of Civil Procedure4 section 1292.2 states, in pertinent part: "[A]ny petition made after the commencement or completion of arbitration shall be filed in a court having jurisdiction in the county where the arbitration is being held or has been held." Just as no objection was made at the time of arbitration on the grounds the arbitration took place telephonically while the arbitrator was in his office in Los Angeles, counsel for DJO was in San Diego, and counsel for MioMed was in Los Angeles,5 MioMed made no objection to the jurisdiction of the trial court on the grounds the arbitration did not take place in San Diego. Rather it appears from the record that at all pertinent times—both at the arbitration and while the case was pending in the trial court—the parties treated the arbitration as if it took place in San Diego. Thus, on its face, section 1292.2 provided the trial court the power to act on DJO's petition to confirm the arbitration award.

We reject MioMed's contention that on this record section 1292.6 provides an exception to the jurisdiction provided to the trial court by section 1292.2. Section 1292.6 states: "After a petition has been filed under this title, the court in which such petition was filed retains jurisdiction to determine any subsequent petition involving the same agreement to arbitrate and the same controversy, and any such subsequent petition shall be filed in the same proceeding." (Italics added.) Section 1292.6 is part of Title 9 of the Code of Civil Procedure, which embodies the California Arbitration Act. As MioMed contends, where applicable, section 1292.6's provision of continuing jurisdiction is, by its terms, mandatory. However, as DJO contends, the only petition under the California Arbitration Act in the record here is DJO's petition to confirm the arbitrator's award.

Admittedly, after MioMed filed its Illinois complaint, DJO filed a motion to compel arbitration in the Illinois action and its motion was granted. Nonetheless, contrary to MioMed's argument, we cannot interpret DJO's motion to compel as a petition within the meaning of section 1292.6. We recognize, as DJO argues, that the Illinois complaint did not conform to the express forum requirements of the distribution agreement; however, we do not believe that fact is necessarily controlling with respect to application of the continuing jurisdiction provided by section 1292.6. (See Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 532 [arbitration often begins as objection or defense to legal action].) Rather, we find section 1292.6 inapplicable on somewhat different grounds.

Our review of the record discloses DJO's Illinois motion to compel was not made under the provisions of the California Arbitration Act, but was expressly made under the provisions of the Illinois' Uniform Arbitration Act (715 ILCS 15/1 et seq.). Consistent with its express terms, we interpret section 1292.6 as providing continuing jurisdiction to courts only when petitions under the California Arbitration Act have been filed in those courts. The Legislature's distinct treatment of petitions brought under the California Arbitration Act as opposed to petitions brought under the arbitration laws of other states, such as DJO's motion to compel, serves obvious and significant interests. Where a court of this state or a sister state is acting under Title 9 of the Code of Civil Procedure, it is applying the California Arbitration Act and protecting the interests of California parties to the extent our arbitration statute provides such protection. In that instance, providing the court where the arbitration process was initiated with the mandatory continuing jurisdiction provided by section 1292.6 poses no real risk to California interests, whether the court is a California court or the court of a sister state. On the other hand, where, as here, a sister state acted under its own arbitration law in ordering arbitration, there is no assurance that California's interests will be vindicated by application of the California Arbitration Act and hence section 1292.6 does not provide mandatory continuing jurisdiction.

In instances such this, the trial court may nonetheless have discretion to defer to a court in a sister state acting under its own arbitration law, but it is not required to do so. That discretion arises under the distinct doctrine and defense of a prior pending action. (See Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574; Colvig v. RKO General, Inc. (1965) 232 Cal.App.2d 56, 70-71.) As the court in Leadford v. Leadford stated: "The pendency of another earlier action growing out of the same transaction and between the same parties is a ground for abatement of the second action. . . . [¶] However, abatement is required only where the multiple actions are pending in courts of the same state. (Simmons v. Superior Court (1950) 96 Cal.App.2d 119, 123 [pendency of prior suit in one state cannot be pleaded as a bar to a subsequent suit in another state]; and see Rest.2d, Conf. of Laws, § 86.) Where, as here, the actions are pending in courts of different states, the determination whether to stay the later-filed action is discretionary, not mandatory. . . . In many cases, considerations of comity and the prevention of multiple and vexatious litigation will most often militate in favor of stay. However, other factors weigh in the balance, and where judicial economy, the interests of the forum, and the convenience of the parties weigh in favor of allowing the action to proceed, the trial court has discretion to deny the stay." (Leadford, at pp. 574-575, italics added & fn. omitted.) In this case, where the parties have not offered argument here or in the trial court on the factors discussed by the court in Leadford, we have no basis upon which to determine whether the trial court's failure to defer to the Illinois court was an abuse of discretion.6

In sum, the trial court here had jurisdiction under section 1292.2, and there is nothing in the record on appeal which deprived it of that jurisdiction.

II

A. Arbitrator's Award

As we have indicated, in finding MioMed's claim was barred by the statute of limitations, the arbitrator determined that under the terms of the distribution agreement, arbitration was expressly "a condition precedent" to any legal action between the parties. The arbitrator's award states: "This `condition precedent' is mandatory, not permissive. Thus, for purposes of applying the parties' Agreement, Claimant's filing in an Illinois court is not a substitute for filing an arbitration demand. Only a demand, not the filing of a civil lawsuit, constitutes the operative commencement of the contractually mandated arbitration for statute of limitations purposes." Because more than four years had passed from the time of DJO's alleged 2008 breach when MioMed made its 2014 demand, the arbitrator found the demand was time barred under the four-year limitation period set forth in section 337.

MioMed concedes that it may not challenge the arbitrator's award on the grounds that it is legally incorrect. (See Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) Thus, we need not and do not consider whether either MioMed's Illinois complaint or DJO's motion to compel arbitration were sufficient to toll the statute of limitations. Rather, MioMed argues the arbitrator's conduct of the arbitration, rather than his reasoning, require that his award be vacated.

B. Section 1286.2

Section 1286.2 subdivision (a)(3), (a)(4) and (5) permit a trial court to vacate an arbitration award where it is shown the arbitrator engaged in misconduct, acted outside his powers or failed to consider evidence offered by one of the parties. Here, MioMed contends the arbitrator engaged in misconduct, acted outside his powers and failed to consider evidence because MioMed contends that, in relying on the "condition precedent" language of the distribution agreement, the arbitrator acted sua sponte and on a basis not raised by DJO in its motion. The record simply does not support this contention.

By way of its motion DJO expressly argued that MioMed's claim was barred by the statute of limitations and that, because the Illinois action was not filed in California it did not toll the limitations period.7 DJO's motion implicitly conceded that a demand for arbitration would toll the limitations period, but argued MioMed's 2014 demand was untimely. In effect, the arbitrator simply read the distribution agreement more narrowly than even DJO; whereas DJO would permit tolling if either an arbitration demand was made or an action in California was commenced, the arbitrator determined that only an arbitration demand met the requirements of the distribution agreement. The arbitrator's narrower reading of the distribution agreement was in no sense sua sponte or an intrusion on MioMed's right to a fair hearing.

In this regard, we note that in the somewhat analogous situation presented by Government Code section 68081, which requires that we permit additional briefing before relying on an issue not raised by the parties, no briefing is required with respect to "an issue, mode of analysis, or authority that is raised or fairly included within the issues raised." (People v. Alice (2007) 41 Cal.4th 668, 679, italics added.) Here, the statute of limitations was raised by DJO, as were the requirements of the distribution agreement and the potential impact of the Illinois action; the arbitrator's strict interpretation of the distributorship agreement was fairly included in those issues.

The cases MioMed relies upon—Bonshire v. Thompson (1997) 52 Cal.App.4th 803, 811 and California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 951-953—are readily distinguishable from the record here. There is no showing the arbitrator here considered evidence outside the record, as in Bonshire v. Thompson, and the distributorship agreement here contains none of the particular limitations on the arbitrator's powers that were present in California Faculty Assn. v. Superior Court.

DISPOSITION

The judgment is affirmed. DJO to recover its costs on appeal.

HALLER, J. and AARON, J., concurs.

FootNotes


1. The parties agreed the matter would be heard by the Honorable Charles W. McCoy, Jr. (Ret.), who has offices in Los Angeles, and he conducted the proceedings telephonically from his office there. Counsel for DJO appeared by telephone from his office in San Diego and counsel for Miomed appeared by telephone from his office in Los Angeles. No party raised any objection on the grounds the arbitration did not take place in San Diego as required by the distribution agreement and no objection is raised on appeal on those grounds.
2. MioMed also asked the Illinois court to vacate the arbitration award. On April 15, 2016, the Illinois court denied MioMed's motion to vacate the arbitration and dismissed the action in its entirety.
3. MioMed does not challenge the trial court's personal jurisdiction over it. We note that by agreeing that the distribution agreement would be governed by California law and that any arbitration would take place here, the parties consented to the jurisdiction of the trial court over them. (Code Civ. Proc., § 1293.)
4. All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
5. See footnote 1.
6. Moreover, the record gives rise to some doubt as to whether there is now pending any Illinois litigation to which the trial court might be required to defer on any remand, to wit: following the trial court's order affirming the arbitrator's award the Illinois action was dismissed in its entirety.
7. In the arbitration, DJO's made the following statute of limitations argument: "In addition to waiving its right to arbitrate, MioMed failed to protect the statute of limitations. When parties agree to arbitrate a dispute arising out of contract, the statute of limitations affirmative defense is for the arbitrator to decide. (Wagner Cons. [v.] Pacific Mech. Group (2007) 41 Ca1.4t[h 19], 23.) The statute of limitations for breach of a written contract expires four years after the claimant obtains knowledge of the breach. (C.C.P. § 337 and Romano v. Rockwell (1996) 14 Cal.4th 479, 488.) MioMed admits learning of the alleged breach at least as early as July 6, 2008. "The agreement in question called for the parties to arbitrate disputes first. As to equitable disputes, the contract included a clause whereby MioMed and DJO agreed to the jurisdiction of the U.S. District Court for the Southern District of California and the state and federal courts of the State of California. Despite these requirements, MioMed initially sought relief under the contract by filing suit in the Circuit Court of Cook County, Illinois on June 26, 2009. MioMed never filed suit in California State court or in the U.S. District Court for the Southern District of California. MioMed eventually demanded arbitration in California, but not until July 24, 2014. "Generally, filing a complaint stops the statute of limitations from running. (Sharps v. Maquire (1862) 19 Cal. 577.) The complaint, however, must be filed `in the proper court.' [Emphasis added.] (Pimental v. City of San Francisco (1863) 21 Cal. 351, 352, and Allen v. Marshall (1867) 3[4] Cal. 165, 166 citing to Sharps, supra.) MioMed's failure to file suit in the proper court (i.e. California state or federal court) means the statute of limitations did not stop running when MioMed filed in Illinois. Instead, the statute continued to run until MioMed's July 24, 2014 demand. By the time of the demand, more than six years had passed since the alleged breach. Thus, the four year statute of limitations expired two years before MioMed demanded arbitration."

In its opposition to DJO's arbitral motion for summary judgment, Miomed argued that the authority DJO relied upon was no longer controlling and that: "DJO does not cite any current, in effect statute which provides that an action is commenced for purposes of stopping the statute of limitations from running only when it is filed in the proper court. The current applicable statute of limitation period specified in Code of Civil Procedure, section 337, only provides, `[w]ithin four years. 1. An Action upon any contract, obligation or liability founded upon an instrument in writing . . . [.]' [¶] Further, a civil action is `commenced' for statute of limitations purposes against persons named in the complaint upon the filing of the complaint. (Cal. Practice Guide: Civil Procedure Before Trial-Statutes of Limitations (The Rutter Group) 2014 1:58, p. 1-2) In the present case, the statute of limitations stopped running when MioMed filed its complaint in the Illinois Action on June 29, 2009, alleging, inter alia, counts for breach of contract. The complaint was filed well within four years of DJO's alleged breaches of the Agreement.

"Because DJO has not met its burden to demonstrate that the statute of limitations has expired, DJO's Motion based on statute of limitation grounds must be denied."

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