Calironia Court Cases - Case Law from CA - California Court

	ROMINGER LEGAL
		California Case Law & California Court Opinions - California Law
					Need Legal Help?
					Need Legal Help?
LEGAL RESEARCH CENTER
LEGAL RESEARCH CENTER			LEGAL HEADLINES - CASE LAW - LEGAL FORMS	NOT FINDING WHAT YOU NEED? -CLICK HERE

This court case was taken from the California Court's web site. Search our site for more cases - CLICK HERE

LEGAL RESEARCH

COURT REPORTERS

PRIVATE INVESTIGATORS

PROCESS SERVERS

DOCUMENT RETRIEVERS

EXPERT WITNESSES

Find a Private Investigator

Find an Expert Witness

Find a Process Server

Case Law - save on Lexis / WestLaw.

Legal News - Legal Headlines

Filed 10/12/04 (opn. on rehearing)

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

R. THOMAS FAIR,

Plaintiff and Appellant,
A100240

v.
(San Mateo County
KARL E. BAKHTIARI et al.,
Super. Ct. No. 417058)

Defendants and Respondents.

STONESFAIR FINANCIAL

CORPORATION,

Defendant, Cross-Complainant and

Respondent,

v.
R. THOMAS FAIR,

Plaintiff, Cross-Defendant and
Appellant.

Plaintiff R. Thomas Fair appeals the trial court's denial of his motion to compel
arbitration. The motion was based on an arbitration clause in a document that was signed
at the conclusion of mediation by plaintiff and defendants Karl E. Bakhtiari (Bakhtiari)
and Maryann E. Fair (Maryann Fair), as well as by defendants Stonesfair Financial
Corporation (SFC), Stonesfair Management Company, LLC (SMC), and Stonesfair
Corporation (SC) (collectively Stonesfair entities). Plaintiff contends this document

* Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is
certified for publication with the exception of footnote 5 (at pp. 6-7), the second
paragraph of part I (at p. 7) and footnote 6 (at pp. 7-8), and part III (at pp. 11-16).

1

constitutes a valid, admissible settlement agreement between the parties and the trial
court erred in ruling to the contrary. We find the trial court erred in denying the motion
to compel arbitration because (1) the settlement agreement satisfies a statutory exception
to the inadmissibility of written or oral communications made during mediation, and
(2) the settlement agreement contains a valid agreement between the parties to arbitrate
all disputes. We therefore shall reverse.
BACKGROUND

On March 6, 2002, plaintiff filed a third amended complaint against defendants.1
The complaint alleged causes of action for breach of contract against Bakhtiari, SFC and
SC; breach of fiduciary duty against Bakhtiari and Maryann Fair; corporate waste against
Bakhtiari and Maryann Fair; assault against Bakhtiari; battery against Bakhtiari; wrongful
and retaliatory termination in violation of public policy against Bakhtiari and SFC;
wrongful termination against Bakhtiari and SFC; intentional infliction of emotional
distress against Bakhtiari and Maryann Fair; unfair business practices against Bakhtiari,
Maryann Fair and SMC; interference with economic relations against all defendants;
conversion against Bakhtiari, Maryann Fair and SMC; fraud against Bakhtiari, Maryann
Fair and SFC; and constructive fraud against Bakhtiari and Maryann Fair.

On March 20, 2002, SFC filed a cross-complaint against plaintiff, which alleged
breach of fiduciary duty, misappropriation of trade secrets (Civ. Code, � 3426 et seq.),
misappropriation of property, intentional interference with prospective economic
advantage, unfair competition, and conversion.

The parties thereafter stipulated to private mediation and participated in two days
of mediation, on March 20 and 21, 2002, before Eugene Lynch, a mediator employed by
Judicial Arbitration and Mediation Services (JAMS). On March 21, 2002, all parties and
the mediator signed a one-page document, hand-written by plaintiff's counsel, entitled

1 Plaintiff commenced this action on May 30, 2001. However, because the history
of this matter prior to the filing of the third amended complaint is irrelevant to the issues
raised on appeal, the earlier factual and procedural details are not included in this
opinion.

2

"Settlement Terms" (settlement terms document), which set forth nine numbered
settlement terms, as follows:

"1. Cash payment of $5.4 mm to T. Fair w/in 60 days.

"2. Payment treated as purchase of all T. Fair's stock & interests (as capital gain
to Fair)[.]

"3. [Defendants] will not look to Fair for reimbursement or indemnification of
any phantom income paid by them to date.

"4. This provision relates solely to Fair's right to indemnity and does not preclude
other rights of the parties. Fair will be indemnified as a former officer, director &
employee by SFC/SMC/SC, according to applicable law, against all 3rd party claims,
including LPs [limited partners] or IRS, arising from the operation of SFC/SMC. Fair
will not make any adverse contacts with IRS [or] LPs re: SFC/SMC, at risk of loss of
indemnity and will not suggest, foment or encourage litigation by LPs or any individual
against defendants, at risk of loss of indemnity.

"5. Maryann Fair disclaims any community prop[erty] interest in settlement
proceeds.

"6. Parties will sign mutual releases and dismiss with prejudice all claims. Am't
of settlement will be confidential with appropriate exceptions.

"7. All sides bear their own attorneys fees and costs, including experts.

"8. If Fair needs to restructure cash payments for tax purposes, defendants will
cooperate (at no additional cost to defendants).

"9. Any and all disputes subject to JAMS arbitration rules."

Below item nine, the document was dated March 21, 2002, and was signed by
plaintiff, Bakhtiari, Maryann Fair, mediator Lynch, Bakhtiari for SFC/SC, and Bakhtiari
for SMC.

In early April 2002, the attorneys for the various defendants filed with the trial
court Case Management/ADR Conference Questionnaires, in which they stated, "After
2 days of Mediation, the case has settled. The Settlement Agreement is being circulated
for approval and a Request for Dismissal with prejudice will be filed."

3

Counsel for the Stonesfair entities also drafted a 10-page document entitled
"Settlement Agreement and General Release," which plaintiff's counsel received on
April 4, 2002.

At an April 17, 2002 hearing, counsel for Bakhtiari informed the trial court that
"this matter was mediated on March the 20th and 21st. We've reached a settlement
agreement. We are now in the process of exchanging settlement agreements. And there
are some complicated taxation matters involved." All counsel then requested a 60-day
continuance, which the court granted, stating, "If it's settled and there's a dismissal on
file, you need not come in." The trial court also granted a request by plaintiff's counsel
to continue plaintiff's time to respond to defendants' cross-complaint for 60 days.

Meanwhile, the parties expressed differing views as to what interests plaintiff was
to convey in return for the $5.4 million payment and plaintiff's counsel objected to the
inclusion of numerous terms in the draft agreement that had not been agreed to in the
settlement terms document. Plaintiff's counsel requested that the parties return to
mediation in an effort to resolve these issues. Counsel for defendants subsequently
cancelled a mediation session that had been scheduled with mediator Lynch for May 29,
2002.

On June 6, 2002, Bakhtiari and Fair replaced their attorneys with the law firm that
had previously represented only the Stonesfair entities. On that same date, the attorney
for all defendants filed a "Case Management/ADR Conference Questionnaire," in which
he stated that the prior questionnaire submitted in April 2002 "indicated that the dispute
settled after mediation. However, the parties were ultimately unable to reach an
agreement as to the scope and subject matter of the proposed settlement terms.
Accordingly, the case should be resolved through the regular court process."2

After defendants rejected plaintiff's request to arbitrate the disputed issues,
plaintiff filed a motion to compel arbitration and stay proceedings on June 20, 2002. In

2 On June 17, 2002, defendants informed the court that a second law firm (which
presently represents defendants on appeal) would also represent defendants in this matter.

4

the motion, he claimed that the settlement terms document was a settlement agreement,
that it contained an arbitration clause, and that arbitration was needed due to a dispute
that had "arisen between the parties regarding the terms and meaning of the March 21,
2002 settlement agreement."

Following a July 24, 2002 hearing, the trial court filed an order, on September 6,
2002, denying plaintiff's motion to compel arbitration.

On September 10, 2002, plaintiff filed a timely notice of appeal.
DISCUSSION

Plaintiff contends the trial court erred in denying his motion to compel arbitration
pursuant to Code of Civil Procedure section 1281.2.3

In its order denying plaintiff's motion to compel arbitration, the court first
sustained defendants' objections to admission of the settlement terms document into
evidence, citing Evidence Code section 1119,4 and stating that section "1123 has not been
satisfied and the exceptions do not apply. There is no waiver." The court also sustained
defendants' objection to admission of a paragraph of plaintiff's counsel's declaration, in
which he stated the intent of mediator Lynch and all counsel involved in drafting the
settlement terms document was for that document to be a binding, enforceable agreement.
Finally, the court denied plaintiff's motion to compel arbitration, stating, "There is
insufficient demonstration of an arbitration agreement given the inadmissibility of the
Term Sheet. [�] Further, Condee v. Longwood Management Corp. (2001)
88 Cal.App.4th 215 [(Condee)] is distinguishable as the public policy factors underlying
mediation are not involved."

3 Code of Civil Procedure section 1281.2 provides in relevant part: "On petition
of a party to an arbitration agreement alleging the existence of a written agreement to
arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the
court shall order the petitioner and the respondent to arbitrate the controversy if it
determines that an agreement to arbitrate the controversy exists . . . ."

4 All further statutory references are to the Evidence Code unless otherwise
indicated.

5

In deciding whether the trial court should have granted plaintiff's motion to
compel arbitration, we must determine, first, whether the settlement terms document
satisfies any of section 1123's exceptions to the confidentiality requirements of section
1119 and, if so, whether the arbitration provision in the settlement terms document
constitutes a valid agreement to arbitrate disputes.5*

5* Plaintiff's chief argument, which we find unnecessary to address at great length,
is that an arbitration agreement need not be admissible to "exist" pursuant to Code of
Civil Procedure section 1281.2. Thus, even if, as the trial court found, the settlement
terms document is not a valid or admissible settlement agreement, it nonetheless still
exists for purposes of satisfying Code of Civil Procedure section 1281.2, according to
plaintiff. In support of this argument, plaintiff cites Condee, supra, 88 Cal.App.4th 215,
in which the appellate court held that Code of Civil Procedure section 1281.2 "does not
require the petitioner to introduce the [arbitration] agreement into evidence. A plain
reading of the statute indicates that as a preliminary matter the court is only required to
make a finding of the agreement's existence, not an evidentiary determination of its
validity." (Id. at p. 219.)

Plaintiff's reliance on Condee is misplaced. In Condee, supra, 88 Cal.App.4th
215, the sole question was whether the petitioner was required to authenticate the
arbitration agreement in a petition to arbitrate; the existence of the contract was not
otherwise in question. The court found it was sufficient to allege the existence of the
contract and its terms or to attach a copy of the contract, pursuant to California Rules of
Court, rule 371. (Condee, at p. 219.) The court noted that, "although no evidence was
ever introduced to verify the signature's authenticity, it was never challenged." (Id. at
p. 218.) Furthermore, as the trial court in this case stated, the public policy factors
underlying mediation were not involved in Condee.
Unlike
Condee, the present case concerns a document created during mediation,
which defendants argue is inadmissible pursuant to the confidentiality requirements of
section 1119, and so cannot be said to exist for purposes of compelling arbitration under
Code of Civil Procedure section 1281.2. (See � 1119, subd. (b) [disclosure of a writing
prepared "in the course of, or pursuant to, a mediation . . . shall not be compelled, in any
arbitration . . ."].) Defendants argue, moreover, that, even if the settlement terms
document satisfied one of the exceptions to section 1119 for written settlement
agreements (see � 1123), the agreement still does not exist for purposes of compelling
arbitration, because the document does not constitute an agreement between the parties.
The reasoning in Condee is thus inapplicable to the present circumstances.

The same is true of Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100
Oak Street (1983) 35 Cal.3d 312 (Ericksen), also relied on by plaintiff, in which the
California Supreme Court observed: " `If participants in the arbitral process begin to
assert all possible legal or procedural defenses in court proceedings before the arbitration

6

I. Applicable Standard of Review

The threshold question regarding whether the settlement terms document--
assuming it does in fact constitute an agreement between the parties--satisfies any of the
exceptions in section 1123 to the inadmissibility of settlement agreements reached during
mediation, is subject to de novo review, since reviewing courts "independently determine
the proper interpretation of [a] statute." (Burden v. Snowden (1992) 2 Cal.4th 556, 562.)
Likewise, interpretation of the language of the settlement terms document is subject to
de novo review. (See Coast Plaza Doctors Hospital v. Blue Cross of California (2000)
83 Cal.App.4th 677, 684.)

*With respect to the secondary question--whether an agreement to arbitrate
exists--de novo review is appropriate because the extrinsic evidence is not in conflict
(see Watts v. Crocker-Citizens National Bank (1982) 132 Cal.App.3d 516, 521, citing
Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866), and because the
trial court never resolved any factual disputes relating to the existence of an arbitration
agreement, since it found it was precluded by section 1119 from determining whether the
settlement terms document constituted an agreement. (See Mitchell v. American Fair
Credit Assn. (2002) 99 Cal.App.4th 1345, 1350.)6*

itself can go forward, "the arbitral wheels would very soon grind to a halt." ' [Citation.]
Referring preliminary issues to the courts can cause ` "serious delay and confusion, thus
robbing the arbitration procedure of much of its value to the parties." ' [Citations.] And,
we have recently warned against `procedural gamesmanship' aimed at undermining the
advantages of arbitration. [Citation.] A statutory interpretation which would yield such
results is not to be preferred." (Ericksen, at p. 323.) Our Supreme Court explained in a
later case, however, that, in Ericksen, it had "explicitly distinguished cases where the
party opposing arbitration ` "denied ever agreeing to anything." ' [Citation.]" (Rosenthal
v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 417, quoting Ericksen,
supra, 35 Cal.3d at p. 323, fn. 8.)

Here, there are preliminary questions regarding admissibility and the existence of
an agreement to arbitrate that must be resolved before arbitration can be ordered.

6* We are not persuaded by defendants' argument that the substantial evidence
standard of review is applicable, particularly since the trial court made no factual findings

7

II. Applicability of Section 1123

Section 1119 provides: "Except as otherwise provided in this chapter:

"(a) No evidence of anything said or any admission made for the purpose of, in the
course of, or pursuant to, a mediation or a mediation consultation is admissible or subject
to discovery, and disclosure of the evidence shall not be compelled, in any arbitration,
administrative adjudication, civil action, or other noncriminal proceeding in which,
pursuant to law, testimony can be compelled to be given.

"(b) No writing, as defined in Section 250, that is prepared for the purpose of, in
the course of, or pursuant to, a mediation or a mediation consultation, is admissible or
subject to discovery, and disclosure of the writing shall not be compelled, in any
arbitration, administrative adjudication, civil action, or other noncriminal proceeding in
which, pursuant to law, testimony can be compelled to be given.

"(c) All communications, negotiations, or settlement discussions by and between
participants in the course of a mediation or a mediation consultation shall remain
confidential."
In
Foxgate Homeowners' Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1,
3-4 (Foxgate), the California Supreme Court held that the Court of Appeal had erred in
creating a judicial exception to the confidentiality requirements of section 1119 and
section 1121 (regarding confidentiality of a mediator's reports and findings). The court
observed that "confidentiality is essential to effective mediation, a form of alternative
dispute resolution encouraged and, in some cases required by, the Legislature."
(Foxgate, at p. 14.) Therefore, to encourage mediation by ensuring confidentiality, the
statutory scheme (which includes section 1119) "unqualifiedly bars disclosure of
communications made during mediation absent an express statutory exception."
(Foxgate, at p. 15, fn. omitted.)

in this case. (See Mitchell v. American Fair Credit Assn., supra, 99 Cal.App.4th at
p. 1350.)

8

The court in Foxgate further stated that because the language of sections 1119 and
1121 is clear and unambiguous, "judicial construction of the statutes is not permitted
unless they cannot be applied according to their terms or doing so would lead to absurd
results, thereby violating the presumed intent of the Legislature. [Citations.]" (Foxgate,
supra, 26 Cal.4th at p. 14.) The court found, moreover, that a judicially crafted exception
to the confidentiality requirements of sections 1119 and 1121 "is not necessary either to
carry out the legislative intent or to avoid an absurd result." (Foxgate, at p. 14; accord,
Rojas v. Superior Court (2004) 33 Cal.4th 407, 424 (section 1119's confidentiality
requirements are not subject to a "good cause" exception]; Eisendrath v. Superior Court
(2003) 109 Cal.App.4th 351, 362 [rejecting claim of implied waiver of mediation
confidentiality rights].)

Section 1123, which is relevant here, provides: "A written settlement agreement
prepared in the course of, or pursuant to, a mediation, is not made inadmissible, or
protected from disclosure, by provisions of this chapter if the agreement is signed by the
settling parties and any of the following conditions are satisfied:

"(a) The agreement provides that it is admissible or subject to disclosure, or words
to that effect.

"(b) The agreement provides that it is enforceable or binding or words to that
effect.

"(c) All parties to the agreement expressly agree in writing, or orally in accordance
with Section 1118, to its disclosure.

"(d) The agreement is used to show fraud, duress, or illegality that is relevant to an
issue in dispute."

Both section 1119 and section 1123 were enacted in 1997. They took the place of
former section 1152.5, and section 1123 essentially restates several of former section
1152.5's terms, except that section 1123, subdivision (b), is new. The Law Revision
Commission Comments to section 1123 explain that this subdivision was added "due to
the likelihood that parties intending to be bound will use words to that effect [i.e., to the
effect that the agreement is "enforceable or binding"], rather than saying their agreement

9

is intended to be admissible or subject to disclosure [under subdivision (a)]." (Cal. Law
Revision Com. com., 29B pt. 3 West's Ann. Evid. Code (2004 supp.) foll. � 1123,
p. 157.) This comment, as well as the language of subdivisions (a) and (b) of section
1123 itself, shows that the Legislature's concern was not with the precise words used in a
settlement agreement, but with the need for the words to unambiguously signify the
parties' intent to be bound.

Based on this commonsense reading of the statute, we find that the exception
specified in section 1123, subdivision (b), to section 1119's confidentiality requirements,
is applicable to the present case. While it is true that the settlement terms document does
not contain the words "enforceable" or "binding," there is language in the document, i.e.,
"words to that effect," that makes plain the parties' intent to be bound. (� 1123,
subd. (b).)

The final provision of the settlement terms document states: "Any and all disputes
subject to JAMS arbitration rules." The "JAMS Comprehensive Arbitration Rules and
Procedures" govern, inter alia, "binding Arbitrations of disputes or claims that are
administered by JAMS and in which the Parties agree to use these Rules." The inclusion
of this term requiring resolution of all disputes under JAMS arbitration rules shows that
the parties contemplated that an arbitrator would, in the event of any disputes related to
the settlement terms document, consider and resolve such disputes. In other words,
inclusion of the arbitration term demonstrates that the parties necessarily intended the
settlement terms document to be "enforceable or binding." (� 1123, subd. (b).)

Thus, because inclusion of the arbitration provision is consistent solely with an
intention on the part of the parties for the settlement terms document to be enforceable or
binding, we find that that provision constitutes "words to that effect" under
subdivision (b) of section 1123. Section 1123 plainly reflects a legislative intent not to

10

make inadmissible settlement agreements that the parties intend to be enforceable. To
find section 1123 inapplicable in the present case would frustrate that intent.7

Consequently, we conclude the trial court erred in finding that the exceptions to
confidentiality specified in section 1123 were inapplicable and that the settlement terms
document was inadmissible for that reason.
III. Existence of a Settlement Agreement*

Defendants claim that even if the settlement terms document "is not made
inadmissible, or protected from disclosure," pursuant to section 1123, it nevertheless does
not "exist" for purposes of ordering arbitration under Code of Civil Procedure section
1281.2, because the document does not constitute an agreement between the parties.8
Plaintiff argues to the contrary. (See Banner Entertainment, Inc. v. Superior Court
(1998) 62 Cal.App.4th 348, 356 ["It follows, of course, that if there was no valid contract

7 We note that the majority of states that have enacted statutes regarding mediation
confidentiality require only that a settlement agreement be in writing and signed by the
parties to be admissible, without the added requirement that the parties expressly provide
for its admissibility or enforceability. (See, e.g., Deason, Enforcing Mediated Settlement
Agreements: Contract Law Collides with Confidentiality (Nov. 2001) 35 U.C. Davis
L.Rev. 33, 46-47 & fn. 33 [citing cases].)

Similarly, the Uniform Mediation Act (Act), drafted by the National Conference
of Commissioners on Uniform State Laws, which approved and recommended the Act
for enactment in all states in 2001, provides that there is no privilege for a mediation
communication that is in a written agreement (including a handwritten agreement), and is
signed by all parties to the agreement. (Act � 6(a)(1); 22 N.Ill.U. L.Rev. (Spring 2002)
165, 210, 213.) The Reporter's Notes to section 6 of the Act explains that "[t]he
exceptions in Section 6(a) apply regardless of the need for the evidence because society's
interest in the information contained in the mediation communications may be said to
categorically outweigh its interest in the confidentiality of mediation communications."
(22 N.Ill.U. L.Rev., supra, at p. 212.)

Our Legislature has made a different choice in requiring further confirmation that
the parties intended a settlement agreement prepared during a mediation to be admissible
and/or enforceable. It is not for us to second-guess the wisdom of the California
requirements, but merely to determine their applicability to the present situation.

8 As previously stated, when a party files a motion to compel arbitration under
Code of Civil Procedure section 1281.2, the court shall order the parties to arbitrate the
controversy "if it determines that an agreement to arbitrate the controversy exists . . . ."

11

to arbitrate, the petition must be denied. [Citation.]"].) The trial court did not address
this question since it found the settlement terms document inadmissible.

"A settlement agreement is a contract, and the legal principles which apply to
contracts generally apply to settlement contracts. [Citation.]" (Weddington Productions,
Inc. v. Flick (1998) 60 Cal.App.4th 793, 810-811.) "Every contract requires the mutual
assent or consent of the parties. (Civ. Code, �� 1550, 1565.) The existence of mutual
consent is determined by objective rather than subjective criteria, the test being what the
outward manifestations of consent would lead a reasonable person to believe. [Citation.]
Accordingly, the primary focus in determining the existence of mutual consent is upon
the acts of the parties involved." (Meyer v. Benko (1976) 55 Cal.App.3d 937, 942-943;
see also King v. Stanley (1948) 32 Cal.2d 584, 591.)9

Furthermore, to determine whether a valid agreement to arbitrate exists, "[c]ourts
do not look to the contract as a whole to determine arbitrability. Challenges to the
validity of the underlying contract (i.e., ambiguous, unclear, lack of consideration) are
not considered. The only question is whether the parties knowingly agreed to arbitrate
disputes under the contract. If they did, the arbitration clause is deemed separable from
the balance of the contract and is enforced despite defenses to the underlying contract."
(Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group
2003), � 5:79, p. 5-48 (Knight), citing Prima Paint Corp. v. Flood & Conklin (1967) 388
U.S. 395, 403-404.)

In the present case, defendants argue that the settlement terms document itself, as
well as other relevant circumstances, show that the parties did not intend that document
to be a binding contract. We disagree. Use of the objective test for determining whether
mutual consent existed shows that the parties intended to enter into a binding contract and
that the settlement terms document contained a valid agreement to arbitrate disputes.

9 Hence, in the present case, the parties' and counsel's after-the-fact declarations
regarding their intent when they signed the settlement terms document are not relevant to
our resolution of the question whether the settlement terms document was intended to be
a binding settlement agreement.

12

(See King v. Stanley, supra, 32 Cal.2d at p. 591; Meyer v. Benko, supra, 55 Cal.App.3d at
pp. 942-943.)

First, the settlement terms document sets forth all of the material terms of the
settlement. It states the purchase price ($5.4 million), the form of payment (cash), and
the timing of the payment (within 60 days). It states that the payment will be treated as
the purchase of all of plaintiff's stock and interests, provides for the indemnification of
plaintiff, and states the circumstances in which he would lose that indemnification. The
document further provides that Maryann Fair waives any community property interest in
the settlement proceeds; that the parties will sign mutual releases and dismiss all claims
with prejudice; that the amount of the settlement will be confidential, with exceptions;
that each side will bear its own attorneys fees and costs; that defendants will cooperate if
plaintiff needs to restructure the cash payments for tax purposes, at no additional cost to
defendants; and that all disputes are subject to JAMS arbitration rules.

Second, the settlement terms document was signed by all of the parties. As the
appellate court in Meyer v. Benko, supra, 55 Cal.App.3d at page 943, explained: "The
fact that this document was signed by both parties indicates that the parties entered into
an enforceable agreement. . . . `The general rule is that when a person with the capacity
of reading and understanding an instrument signs it, he is, in the absence of fraud and
imposition, bound by its contents . . . .' [Citation.]"

Third, the conduct of the parties shortly after signing the settlement terms
document reflects an understanding that the terms of the settlement had been agreed to.
For example, both plaintiff's and defendants' counsel filed with the trial court Case
Management/ADR Conference Questionnaires in early April 2002, in which they stated
that the case had settled after mediation, a settlement agreement was being circulated for
approval, and a request for dismissal with prejudice would be filed. In addition, at an
April 17, 2002 hearing in the trial court, then-counsel for Bakhtiari informed the court
that "this matter was mediated on March the 20th and 21st. We've reached a settlement
agreement. We are now in the process of exchanging settlement agreements. And there
are some complicated taxation matters involved." The court then granted a 60-day

13

continuance to give the parties time to finalize the settlement. These statements by the
parties, made shortly after the mediation concluded, belie defendants' later claim that no
settlement was ever reached and that the settlement terms document did not encompass
the agreement of the parties.

Also belying this claim is the fact that, shortly after execution of the settlement
terms document, defendants' counsel prepared and circulated a formal 10-page draft
Settlement Agreement and General Release (draft agreement), which included virtually
all of the terms of the settlement terms document nearly verbatim, including section 6.4,
which provided that any disputes regarding the agreement would be submitted to
arbitration before a licensed arbitrator "selected in accordance with the Arbitration Rules
of JAMS . . . . ." The draft agreement also contained the following factual recital: "It is
now the desire and intention of the Parties to settle and resolve, as of and effective March
21, 2002, all disputes, differences and claims which Fair may have against Defendants
and Defendants may have against Fair." (Italics added.) This provision reflects an
understanding that the parties entered into a settlement agreement on March 21, 2002,
when they signed the settlement terms document.

Defendants argue, nonetheless, that the circulation of the formal draft agreement,
as well as the parties' dispute regarding some terms of that agreement, demonstrates that
essential elements were left for future agreement and that the settlement terms document
was intended to be an agreement to agree, rather than an agreement. Defendants are
incorrect. (See Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 624, fn. 3
(Ersa Grae).) The circulation of the draft agreement merely reflects the parties' desire,
ascertainable from the settlement terms document, to flesh out some of the details,
including, for example, more specific provisions regarding mutual release and
confidentiality. While it is true that the draft agreement is considerably longer than the
settlement terms document, the settlement terms document contained, albeit in a
minimalist way, all of the crucial elements of the agreement, every one of which was
incorporated into the draft agreement. Contemplation of a formal signed agreement thus

14

is entirely consistent with mutual assent to and intent to be bound by the material terms of
the settlement terms document.

As the appellate court in Ersa Grae explained: "The fact that an agreement
contemplates subsequent documentation does not invalidate the agreement if the parties
have agreed to its existing terms. [Citation.] [` "Any other rule would always permit a
party who has entered into a contract like this . . . to violate it, whenever the
understanding was that it should be reduced to another written form, by simply
suggesting other and additional terms and conditions. If this were the rule the contract
would never be completed in cases where, by changes in the market, or other events
occurring subsequent to the written negotiations, it became the interest of either party to
adopt that course in order to escape or evade obligations incurred in the ordinary course
of commercial business." ']; [citation.]" (Ersa Grae, supra, 1 Cal.App.4th at p. 624,
fn. 3; see also King v. Stanley, supra, 32 Cal.2d at p. 591 [existence of intent to reduce
informal writing to a formal written contract "would not necessarily prevent a binding
obligation from arising, notwithstanding the contemplated written or formal contract was
never executed [citations], unless it also appeared that the parties agreed or intended not
to be bound until a formal written contract was executed [citation]"]; cf. Kohn v. Jaymar-
Ruby, Inc. (1994) 23 Cal.App.4th 1530, 1534 [" ` "When parties orally agree upon all the
terms and conditions of an agreement with the mutual intention that it shall thereupon
become binding, the mere fact that a formal written agreement to the same effect is to be
prepared and signed does not alter the binding validity of the oral agreement" ' "].)

Finally, that the settlement terms document contained an enforcement mechanism,
i.e., disputes are to be resolved pursuant JAMS arbitration rules, further demonstrates that
the settlement terms document was intended to be a binding agreement (see pt. II, ante),
with any disagreements subject to binding arbitration.

Defendants also claim that three of the issues plaintiff seeks to arbitrate involve
material, unresolved terms, and the dispute as to those issues demonstrates that the parties
never agreed on the final terms of the agreement. Those issues include the specific
interests plaintiff is to convey as consideration for the $5.4 million; when the payment is

15

to be made, i.e., within 60 days of what date; and how the payment should be structured
for tax purposes. Whether some terms of the agreement may be ambiguous and require
further inquiry as to their intended meaning, or may even require that those terms be
found unenforceable (see Okun v. Morton (1988) 203 Cal.App.3d 805, 817), is for an
arbitrator, not this court or the trial court, to decide. We have found that the parties
"knowingly agreed to arbitrate disputes" under the settlement terms document. (See
Knight, supra, � 5:79, p. 5-48.) Hence, the arbitration provision is " ` "separable" ' "
from other allegedly ambiguous portions of the agreement. (Rosenthal v. Great Western
Fin. Securities Corp., supra, 14 Cal.4th at p. 416, quoting Prima Paint Corp. v. Flood &
Conklin, supra, 388 U.S. at p. 402; accord, Knight, supra, � 5:79. p. 5-48.)

We have determined, as a matter of law, both that the settlement terms document
is admissible, pursuant to section 1123, and that it contains a valid agreement to arbitrate
all disputes. Accordingly, because an agreement to arbitrate exists for purposes of Code
of Civil Procedure section 1281.2, plaintiff's motion to compel arbitration should have
been granted. (See Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th
at p. 356; Code Civ. Proc., � 1281.2.)10
DISPOSITION

The order denying plaintiff's motion to compel arbitration is reversed. The matter
is remanded to the trial court with directions to vacate its order denying plaintiff's motion
to compel arbitration, and to enter an order granting that motion. Costs on appeal are
awarded to plaintiff.

10 In light of our conclusion, we need not address plaintiff's additional arguments,
including whether the trial court erred in refusing to consider the agreement to arbitrate
independent of the settlement agreement and whether defendants waived the
confidentiality provisions of section 1119.

16

_________________________

Kline, P.J.

We concur:

_________________________
Haerle, J.

_________________________
Ruvolo, J.

17

Trial
Court:
San
Mateo
County
Superior
Court

Trial
Judge:
Honorable
George
A.
Miram

Attorneys for Plaintiff,
Cross-Defendant and Appellant,
R.
Thomas
Fair:
Howard,
Rice, Nemerovski, Canady, Falk &

Rabkin
Gilbert
R.
Serota

Curt Holbreich

Attorneys for Defendants
and Respondents, Karl E. Bakhtiari,
Maryann E. Fair, Stonesfair Financial
Corporation, Stonesfair Management
Company and Stonesfair Corporation;
and attorneys for Cross-complainant
and Respondent, Stonesfair Financial
Corporation:
Shartsis,
Friese
&
Ginsburg,
LLP

Arthur J. Shartsis

Erick C. Howard

18