Tuesday, September 17, 2013

A Tale of Greed, Dead '70s Actors, and a Pro Se Trying to Compel Arbitration. Welcome to LA.

Little v. Pullman, No. B238137 (D2d1 Sept. 9, 2013)

In a somewhat bizarre battle over George Jefferson’s residuals, the court holds that the defendant cannot unilaterally rescind a settlement agreement in order to invoke an arbitration clause in an earlier agreement that was novated by the settlement. 

Pullman and Little entered an agreement to buy Sherman Hemsley’s Screen Actors Guild residuals from his bankruptcy estate, wherein Pullman would pay Little $42,500, and then Pullman’s company would administer the residuals and split them evenly between Pullman and Little. The contract had an arbitration clause in it. A dispute arose over that agreement, which the parties ultimately settled, with Little agreeing to return the $42,500 and Little to receive 100 percent of the residuals. The settlement agreement was fully integrated, superseded the original contract, and did not have an arbitration clause.

The parties then got in a dispute about the settlement. Little sued Pullman, who sought to compel arbitration. The court denied the motion because the original agreement was superseded by the settlement, and the court of appeal affirmed that ruling. On remand, Pullman tried to rescind the settlement by offering to repay Little the $42,500 if Little would pick up the check from Pullman’s lawyer and agree that the return of the funds would rescind the settlement, and added a counterclaim for rescission. Pullman then argued that his unilateral rescission of the settlement left only the original agreement standing, and, on that basis, sought again to compel arbitration. The trial court again denied the motion. Pullman again appealed.

The appeal raised two issues: (1) Did Pullman satisfy the conditions to rescind the settlement agreement, and (2) If so, did that permit him to invoke the arbitration clause in the original agreement. The court of appeal answered negatively on both. First, Pullman’s attempt to rescind was ineffective because his offer to return the settlement consideration was not a true offer to pay the consideration, was conditional, and the check that Pullman offered was not accepted by Little, who had the right to demand cash payment.

As to the second issue, even if Pullman had met the preconditions for rescission, under Civil Code § 1692, the relief Pullman sought—voiding the settlement agreement and holding that the original contract was revived—could only be obtained through a decision adjudicating the merits of a claim or defense where rescission was at issue. Here, the court had never addressed the merits of the rescission claim—including whether recession was justified—whether in connection with the motion to compel arbitration or otherwise.

The court of appeal thus affirmed the denial of the motion. On remand, were Pullman to make a proper tender to return the $42,500, the trial court could—but was not required to—adjudicate whether rescission was justified, and the appropriate remedy in connection with a renewed petition to compel arbitration. That said, it would not be compelled to do so, as it has the discretion to order its own proceedings. It could thus table the petition and delay its resolution while reaching the merits of the other claims.


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