Date: 02-07-2020

Case Style:

Case Number: B295667

Judge: Wiley, J.

Court: California Court of Appeals Second Appellate District, Division Eight on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: Arthur R. Petri, II, and Dan E. Heck

Defendant's Attorney: Clinton Bailey and Mark C. Bailey

Description: A housing corporation tried to enforce an arbitration
agreement against a local chapter of an international fraternity.
The trial court denied the corporation’s motion to compel
arbitration. We reverse because the international fraternity
demanded arbitration, as did the housing corporation, so an
arbitration there must be.
I
We summarize the facts from the documents filed in the
trial court.
A
We describe the three entities pertinent to this case and the
agreements between them. There are two entities on the
fraternity side and one on the other side: the housing
corporation. We begin with the fraternity side.
The Gamma Eta Chapter of Pi Kappa Alpha is a local
chapter of the international Pi Kappa Alpha Fraternity. The
international fraternity is a Tennessee corporation, while the
chapter is unincorporated.
Members of the chapter are undergraduates at the
University of Southern California. Members sign an agreement
outlining the chapter’s and fraternity’s terms and conditions.
This written agreement is vital here because it shows the
relationship between the international fraternity and the local
chapter. With lawyerly precision, the text of this agreement uses
capitalized nouns to denote the local chapter as “Chapter” and to
refer to the international fraternity as “Fraternity.” We recite
the first two sentences of this carefully-drawn agreement, which
defines the relationship of these two entities. Our italics mark
important words.
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“You have decided to join and become a candidate for
membership with your chapter (“Chapter”), which possesses a
charter to function as a fraternal component of The Pi Kappa
Alpha International Fraternity (“Fraternity”). This Fraternity is
composed of a large number of similarly-situated chapters
throughout North America to which hundreds of thousands of
previously-initiated members belong.”
This agreement contains another significant provision.
Again we italicize important words.
“As a condition of joining and potential membership, you
agree that any and all monetary, damage and/or
membership disputes between you and your chapter and/or
the Fraternity or involving any entity or person who is
affiliated with the Fraternity shall be resolved by nonjudicial mediation as a first effort and, if that mediation
does not resolve the matter, by binding arbitration in
accordance with the Fraternity’s dispute resolution
procedures which include a waiver of judges and juries in
all state and federal judicial systems.”
Each member also must sign a separate contract with the
chapter describing the member’s financial responsibilities to the
chapter.
We now turn to the third entity in this case: the housing
corporation. Gamma Eta Foundation of Nevada is the housing
corporation. Harlan Helvey is the housing corporation’s only
officer and director. The chapter alleges the housing corporation
“was specifically created to serve as a non-profit facilitator to
ensure that the [Pi Kappa Alpha] fraternity at USC would
consistently have a fraternity house to house and host its
members.” The housing corporation leases the fraternity house
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from a landlord, then subleases rooms to the chapter members.
Members pay rent to the housing corporation.
Each member who lives in the fraternity house signs an
individual lease with the housing corporation. This lease
contains no arbitration provision.
The housing corporation acts as the chapter’s agent. It
negotiates on the chapter’s behalf with landlords for lease terms
and pricing. The chapter claims that, without the chapter, the
housing corporation has “no need to exist or otherwise enter into
leases for fraternity houses at USC.”
The record contains no written agreement between the
chapter as a whole and the housing corporation. Neither the
chapter nor the housing corporation argues such a contract
exists.
B
We summarize the dispute.
The chapter sued the housing corporation and Helvey. We
refer to both defendants as either “housing corporation” or
“Helvey.”
The chapter filed its original complaint on August 14, 2018.
The operative first amended complaint, filed October 16, 2018,
alleged Helvey grossly inflated expenses and overcharged the
chapter by more than $106,000. The chapter also alleged Helvey
threatened “to destroy [the chapter] as an active fraternity at
USC” and to leave the members with no fraternity house if the
chapter did not pay the new charges Helvey imposed after
negotiating a lease with a new landlord. Helvey allegedly
“demanded that each live-in member of [the chapter] sign a nonnegotiated lease containing his inflated and unfair charges.” The
chapter further claimed Helvey falsified charges to equal or
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exceed the members’ security deposits, failed to follow the
fraternity’s guidelines, and misappropriated membership dues,
rents, security deposits, donations, and fundraising money. The
chapter sued Helvey and the housing corporation for constructive
fraud, breach of fiduciary duty, unjust enrichment, negligent
misrepresentation, and others.
The international fraternity did not join this suit. Rather,
the international fraternity opposed litigation in court and
demanded arbitration. It did so on October 29, 2018, less than
two weeks after the chapter filed the first amended complaint.
On October 29, 2018, the international fraternity’s general
counsel wrote a letter both to the chapter’s president and to
Helvey. This letter is the crucial document in this case. The
parties refer to it by date, and sometimes also as the “Fraternity’s
memo” or “Def. Exh. 8.”
The international fraternity’s letter said the local chapter
lacked “legal standing” to sue the housing corporation because of
the arbitration provision in the agreement each member signed
upon joining the fraternity. The letter stated the international
fraternity officially recognized the housing corporation and the
housing corporation was “affiliated with” the fraternity. The
international fraternity’s general counsel instructed the local
chapter to withdraw the lawsuit immediately and to “seek to
resolve this dispute first by mediation, and if not successful, then
by binding arbitration.”
This letter attached the membership agreement, which we
already have quoted as informing new members they “have
decided to join and become a candidate for membership with your
chapter (“Chapter”), which possesses a charter to function as a
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fraternal component of The Pi Kappa Alpha International
Fraternity.”
We again italicize the words fraternal component because
they show the chapter is a subordinate member of an overarching
and governing international organization. This point is
important on the merits.
On November 9, 2018, on the heels of the international
fraternity’s October 29, 2018 letter, the housing corporation filed
a motion to compel arbitration and to stay the case. The housing
corporation conceded it was not a signatory to the arbitration
agreement between individual chapter members and the
fraternity, but argued it could invoke the agreement because it
was the chapter and fraternity’s “affiliate” and the chapter’s
agent. Citing the October 29, 2018 letter from the international
fraternity, the housing corporation argued the fraternity itself
considered the housing corporation “affiliated with” the
fraternity. The housing corporation also argued the arbitration
agreement encompassed the chapter’s claims against it, because
the agreement applied to “any and all monetary, damage, and/or
membership disputes.” The housing corporation filed supporting
evidence, including a case management statement dated October
25, 2018 in which the chapter’s counsel checked a box stating the
chapter was willing to participate in binding private arbitration.
On December 18, 2018, the housing corporation filed an
amended motion to compel arbitration, as well as a separate
amended motion to stay the case pending arbitration. The record
contains only the notice of motion for each motion. It contains
neither a memorandum of points and authorities nor evidence.
On December 26, 2018, the chapter opposed the motion to
compel arbitration and to stay the case.
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The chapter argued there was no arbitration agreement
between the housing corporation and the chapter or its members,
and the arbitration clause in the agreement between chapter
members and the fraternity was “intended to apply to disputes
between fraternity members and the international fraternal
organization.”
The chapter refused to obey the international fraternity’s
October 29, 2018 letter instructing the chapter to arbitrate its
claims. The chapter’s court papers claimed “Pi Kappa Alpha
International is wrong” and the arbitration clause “simply does
not apply to this case, regardless of what the Pi Kappa Alpha
International Fraternal Organization might think.”
The chapter did not object to the October 29, 2018 letter’s
admissibility. This letter is in evidence for the truth of the
matters it asserts.
The chapter further contended the housing corporation
waived any right to arbitrate by waiting until the parties were
well into the litigation before demanding arbitration. The
chapter filed its original complaint on August 14, 2018. The
housing corporation responded by filing a motion to disqualify
counsel on October 5, 2018. The chapter then filed the operative
first amended complaint on October 16, 2018. The housing
corporation demanded arbitration only after the fraternity’s
general counsel sent the October 29, 2018 letter to both parties,
four months after the litigation began.
According to the chapter, the housing corporation’s actions
were inconsistent because the housing corporation filed an
unlawful detainer action against the chapter’s president without
invoking the arbitration clause. Further, even if the action
against housing corporation somehow were subject to arbitration,
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the chapter sued Helvey “in his individual capacity for alleged
acts of fraud” so Helvey could not invoke the right to arbitrate
under the membership agreement. The chapter also argued this
case had nothing to do with the subject matter of the arbitration
agreement, and the housing corporation filed the motion to
compel arbitration to disadvantage the chapter financially.
In an accompanying declaration, the chapter’s counsel
stated he mistakenly checked the arbitration box in the October
25, 2018 case management statement. He stated he filed an
amended case management statement on November 27, 2018.
This document is not in the record.
Other evidence the chapter filed with the opposition
included (1) a declaration from the chapter’s president; (2) the
membership agreement containing the arbitration provision; (3)
emails between the chapter’s counsel and Helvey; (4) a lease
agreement between the housing corporation and a chapter
member; (5) letters from the chapter’s counsel to Helvey outlining
his unlawful acts; (6) emails between Helvey and a chapter
member’s father; (7) a Notice of Acknowledgement of Receipt of
the chapter’s original complaint, signed by Helvey; (8) a meet and
confer email from the housing corporation’s counsel to the
chapter’s counsel stating the housing corporation’s intent to file a
demurrer; (9) the October 5, 2018 unlawful detainer complaint
Helvey filed against the chapter’s president; and (10) a Notice of
Related Case filed by the housing corporation linking the
unlawful detainer action and the chapter’s lawsuit against the
housing corporation.
The housing corporation filed a reply on January 2, 2019.
It pointed out the chapter’s opposition was “silent on the
Fraternity’s memo (Def. Exh. 8), which concludes defendant
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[housing corporation] is ‘affiliated with’ the Fraternity and the
arbitration agreement applies to plaintiff’s claims—the clearest
evidence of the Fraternity’s intent that defendants benefit from
the arbitration agreement as non-signatories.” The housing
corporation argued this letter was “[t]he only evidence of the
parties’ intent of the scope of the arbitration agreement.”
The housing corporation also filed 25 evidentiary
objections.
The trial court denied the housing corporation’s motion to
compel arbitration at the January 9, 2019 hearing. The minute
order states there was no court reporter at the hearing. The
housing corporation’s opening brief before us states the trial court
did not rule on its objections. The minute order did not spell out
the reasons for the trial court’s ruling. There is no statement of
decision in the record.
The housing corporation appealed.
II
We determine the standard of review.
The trial court may resolve a motion to compel arbitration
in summary proceedings. (Lane v. Francis Capital Management
LLC (2014) 224 Cal.App.4th 676, 683 (Lane).) The moving party
must prove a valid arbitration agreement exists by a
preponderance of the evidence, and the opposing party must
prove any fact necessary to its defense by a preponderance of the
evidence. (Ibid.)
When reviewing a trial court’s ruling on a motion to compel
arbitration, we accept the trial court’s resolution of disputed facts
when supported by substantial evidence. (Lane, supra, 224
Cal.App.4th at p. 683.) Our review is independent when there is
no disputed extrinsic evidence. (Ibid.)
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Generally, whether and to what extent nonsignatories to an
arbitration agreement can enforce the arbitration provision is a
question of law, which we review independently. (Molecular
Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186
Cal.App.4th 696, 708 (Molecular).)
In this case, there were no material factual disputes. The
chapter argues to the contrary, contending the parties disagreed
over whether the housing corporation waived the right to
arbitration and whether the unlawful detainer action involved
the same transactions as this case does, risking conflicting
rulings under Code of Civil Procedure, section 1281.2, subdivision
(c). The facts are not disputed in either argument. The parties
agree on what happened. They disagree about whether the facts
amount to waiver or potentially conflicting rulings. These are
questions of law. When the issues presented as factual questions
actually are legal in character, we independently review the trial
court’s decision. (Molecular, supra, 186 Cal.App.4th at p. 708.)
At oral argument, the chapter’s counsel listed factual issues
he claimed the trial court resolved at the January 9, 2019
hearing, and argued we must defer to these findings and their
inferences. For instance, counsel argued the trial court found the
chapter was not a component of the international fraternity and
the international fraternity had no power to control the chapter
in this dispute. But the same counsel stated in his response brief
before us that “[t]he Court made no findings of fact” at the
hearing and “the record is silent on the basis on which the trial
court denied the motion.” The housing corporation’s brief also
stated the trial court did not make factual findings.
There was no court reporter at the hearing. There is no
statement of decision in the record. Despite the chapter’s about
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face at oral argument, our record shows—and the briefing
concedes—the trial court made no factual findings.
Because there are no factual findings to which we can
defer, our review must be independent.
III
We identify the governing law, which is California state
law.
The Federal Arbitration Act applies to agreements
involving interstate commerce. (Avila v. Southern California
Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 840.) In the trial
court and in this court, however, no party mentioned interstate
commerce or the Federal Arbitration Act. No side claims there is
an issue of federal preemption. (Cf. AT&T Mobility LLC v.
Concepcion (2011) 563 U.S. 333, 339, 341.) Because no party asks
us to apply the law of any other jurisdiction, we apply California
law.
IV
We can resolve the housing corporation’s appeal without a
reporter’s transcript.
There was no court reporter at the hearing on the housing
corporation’s motion to compel arbitration. Absence of a
reporter’s transcript or suitable substitute may warrant
affirmance when the transcript is necessary for meaningful
review. (See Foust v. San Jose Construction Co., Inc. (2011) 198
Cal.App.4th 181, 186–187.) But the chapter does not argue the
hearing included any live testimony or additional evidence.
Because we independently review the trial court’s order denying
the housing corporation’s motion to compel arbitration and the
record before us includes all evidence considered by the trial
court, a reporter’s transcript is not necessary. (Bel Air Internet,
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LLC v. Morales (2018) 20 Cal.App.5th 924, 933–934.) Absence of
a transcript is not fatal to the housing corporation's appeal.
V
The chapter must arbitrate its claims against the housing
corporation. The reasonable interpretation of this record is that
the international fraternity is an overarching and governing
international organization, and the local chapter of this fraternity
is merely a subordinate fraternal component of the international
fraternity.
The international fraternity wanted arbitration, and so did
the defendant housing corporation. This was in effect a
stipulation for arbitration. On this record, the chapter was
impotent to disagree. The proper ruling would have been to
grant the motion to compel arbitration.
Each chapter member signed the membership agreement
containing the fraternity and chapter’s terms and conditions.
The agreement requires members to arbitrate “any and all
monetary, damage and/or membership disputes between you and
your chapter and/or the Fraternity or involving any entity or
person who is affiliated with the Fraternity . . .” The italics are
ours.
On October 29, 2018, the international fraternity’s general
counsel wrote the parties that the chapter did not have legal
standing to sue the housing corporation, because the housing
corporation was affiliated with the fraternity. The international
fraternity’s counsel stated the fraternity “officially recognized”
the housing corporation. Citing the membership agreement’s
arbitration provision, the international fraternity made its
directive clear: the chapter must “immediately withdraw its
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lawsuit and seek to resolve this dispute first by mediation, and if
not successful, then by binding arbitration.”
The chapter sought to ignore this letter’s directive by
claiming “Pi Kappa Alpha International is wrong.” The chapter
argued the arbitration clause “simply does not apply to this case,
regardless of what the Pi Kappa Alpha International Fraternal
Organization might think.” But the subordinate chapter cannot
disregard a clarification of the contract by the international
fraternity of which the chapter is a component.
The chapter emphasizes the international fraternity
delegated control over day-to-day operations to the chapter. This
is undoubtedly true. Another provision in the membership
agreement states:
“Your chapter is locally self-managed, self-operated and
self-financed. You and the Chapter are not supervised,
managed, overseen or subject to control or direction by the
Fraternity or any of its employees or volunteers. To the
contrary, the Fraternity meets every two years at a
convention where each chapter has a vote.”
It is practical, no doubt, for the international fraternity to
delegate day-to-day authority to the “large number of similarlysituated chapters throughout North America.” The international
fraternity may have slight interest in deciding, for instance,
when the front windows of each chapter’s house need washing.
But in its October 29, 2018 letter, which is in evidence and
in the record, the international fraternity asserted its authority
to make the large-scale policy decision about the principle of
arbitration. The international fraternity wrote about “the
Fraternity[’s] . . . dispute resolution procedures” in a commanding
and assertive way.
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This assertion of supervening power is consistent with the
hierarchical command structure the rest of the record displays.
For example, the chapter’s first amended complaint alleged the
chapter, “[w]ith the advice and consent of National . . .
established a new House Corporation in October 2018 consistent
with the guidelines of National.”
The international fraternity’s letter to the parties implies
the fraternity has the authority to order the chapter to withdraw
the lawsuit and to arbitrate the claims. The chapter submitted
no evidence about its right to defy the international fraternity’s
instructions. The chapter president’s declaration did not address
the letter or the relationship between the chapter and the
international fraternity. Nor did the chapter offer other evidence
on this score. The chapter skirted the issue entirely.
On this record, limited though it may be, the chapter
remains a subordinate and inferior component of the
international fraternity. This record implies the chapter lacks
legal power to disregard the instruction from the international
fraternity.
In this court, the chapter continues to attempt merely to
wave away the authority of the international fraternity. Its
opposition brief claims the letter “erroneously conclud[ed] that
the parties’ dispute was subject to arbitration.” There was,
however, no evidence of “erroneous” communication in the record
before the trial court or before us. This claim of error is a
lawyer’s argument in a brief. Factually, it lacks a basis.
The chapter also argues the letter’s recognition of the
housing corporation as “officially recognized by the International
Fraternity” is “insufficient to suggest the kind of affiliate
relationship that needs to exist between the [housing corporation]
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and the International Fraternity.” This argument fails. The
same letter states the housing corporation was “affiliated with
The Pi Kappa Alpha International Fraternity” and cites the
arbitration provision. By plainly stating the housing corporation
and the international fraternity had an affiliate relationship for
purposes of the arbitration clause, the letter established that
affiliate relationship from the perspective that counts: the
perspective of the governing international fraternity.
The chapter also notes, in a passing parenthetical, the
fraternity’s position that the arbitration provision applies to the
housing corporation has been “since abandoned.” Again, this
lawyer’s argument lacks an evidentiary foundation in the record.
The chapter further argues “the letter nowhere mentions
Defendant Helvey, which makes [it] abundantly clear the
International Fraternity especially does not consider him an
affiliate.” This claim is incorrect because the letter instructs the
chapter to withdraw the entire lawsuit and to begin mediation.
The international fraternity did not distinguish between
defendants. It stated the chapter lacked standing to continue the
entire lawsuit, against both defendants. The fact the chapter
sued Helvey in his individual capacity makes no difference,
because its claims against Helvey and the housing corporation
are based on the same facts and theories. (See Laswell v. AG
Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1407–1408
[nonsignatory defendants to arbitration agreement could invoke
the agreement when plaintiff’s claims against all defendants
were inherently inseparable and based on the same facts and
theory].)
The international fraternity’s letter clarifies the arbitration
clause’s scope in the context of the chapter’s lawsuit against the
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housing corporation. There is no evidence suggesting the
international fraternity has taken a different position. The
chapter cannot proceed as though the letter does not exist. It
must arbitrate these claims.
VI
The housing corporation has not waived its right to
arbitrate.
A party claiming the other party has waived its right to
arbitrate must show prejudice. (St. Agnes Medical Center v.
PacifiCare of California (2003) 31 Cal.4th 1187, 1203.) A party
does not waive this right merely by participating in litigation.
(Ibid.) Prejudice arises when a party’s conduct substantially
undermines the public policy favoring arbitration, such as using
discovery to gain information that party could not have gained in
arbitration or waiting until the eve of trial to seek arbitration.
(Id. at p. 1204.)
The chapter did not demonstrate prejudice. The housing
corporation filed its motion to compel arbitration 11 days after
the fraternity sent the letter instructing the parties to arbitrate
the case. The housing corporation filed its motion before the
deadline to respond to the first amended complaint. This
litigation was in its infancy. There was no prejudice.
Because we reverse the order denying the housing
corporation’s motion to compel arbitration, we need not and do
not address the housing corporation’s evidentiary objections to
the chapter’s opposition to the motion to compel arbitration. We
also do not address the housing corporation’s request in its reply
brief before us to strike or disregard unsupported assertions in
the chapter’s brief.

Outcome: The order is reversed and the matter remanded for the trial court to grant the motion to compel arbitration and to stay the case pending arbitration. We award costs to the housing corporation and to Helvey.

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