California Court of Appeal Holds Successor in Interest Can Enforce Arbitration Agreement

California Court of Appeal Holds Successor in Interest Can Enforce Arbitration Agreement

By Shannon Finley and Jenna Leyton-Jones

In Jenks v. DLA Piper Rudnick Gray Cary US, a California Court of Appeal held that an employer’s successor in interest could enforce an arbitration agreement signed before merger of the two companies.  Plaintiff M. Todd Jenks (“Jenks”) sued his former employer, defendant DLA Piper Rudnick Gray Cary US (“DLA Piper”), alleging that the law firm had violated the terms of his resignation agreement by preventing him from receiving certain disability benefits.

DLA Piper moved to compel the case to arbitration by enforcing an arbitration agreement that Jenks had signed with his former employer, Gray Carey Ware & Friedenrich (“Gray Cary”).  Gray Carey’s offer letter to Jenks included a provision requiring both parties to submit all disputes or claims relating to or arising out of their employment relationship to binding arbitration.  Jenks accepted Gray Carey’s offer of employment on May 12, 2000, and on January 1, 2005, Gray Carey merged into DLA Piper.  Jenks signed a resignation agreement with DLA Piper on February 19, 2006.  Jenks opposed arbitration and argued that the resignation agreement superseded offer letter, thereby extinguishing the arbitration provision.  The trial court disagreed, finding that the resignation agreement was a separate agreement applying only to termination-related issues; accordingly, the arbitration agreement in the offer letter remained operative.

Jenks appealed, arguing that the trial court erred by compelling arbitration.

The appellate court held that DLA Piper could enforce the arbitration provision of Jenks’s offer letter as the successor to Gray Carey’s rights and obligations after the merger. The Court of Appeal held that the resignation agreement did not supersede the arbitration of the offer letter for two reasons.  First, despite the integration clause in the resignation agreement, the agreement was limited to the subject matter of resignation.  As such, the resignation agreement was not a complete agreement.  Second, the resignation agreement was silent as to arbitration, and where “one agreement identifies arbitration as the forum for resolving disputes, and a subsequent agreement omits any reference to such a forum, any doubts must be resolved in favor of arbitration.”

This case is a welcome gift to employers this holiday season.   By permitting a successor in interest to enforce an arbitration agreement after a merger and acquisition, Jenks is one of the few employer-friendly arbitration cases issued by California courts this year.  Notwithstanding this ruling, employers who have merged, or are contemplating merger, with another company are advised to consult with employment counsel regarding the enforceability of previously-executed arbitration agreements.