Santa Clara Superior Court County No. 1-06-CV076689, The Honorable Kevin E. McKenney, Judge
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Kao & Swope, Chris Kao; Roubinian Law Group and Leon V. Roubinian for Plaintiffs and Appellants.
Finnegan, Henderson, Farabow, Garrett & Dunner, E. Robert Youches, Zhenyou Yang, Robert F. McCauley and Ming-Tao Yang for Defendants and Appellants.
In this case we are again called upon to determine whether a defendant is entitled to the protection of a broad release clause contained in a settlement agreement to which the defendant is a stranger. In Rodriguez v. Oto (2013) 212 Cal.App.4th 1020, 1023 [151 Cal.Rptr.3d 667]
(Rodriguez), we held that language unambiguously releasing “all persons” from liability was on its face an objective manifestation of intent to extend the release to third parties, and thus entitled a stranger to summary judgment in the absence of countervailing evidence. While acknowledging that this result could present troubling questions of policy, we found it dictated by basic principles of contract law. Critically, however, the release in that case was unambiguous within its four corners, and no cogent reason was presented to question its literal accuracy as an expression of the parties’ intent. Here, in contrast, several other provisions of the settlement agreement containing the release clause are not easily reconciled with its seemingly broad language. The subsequent conduct of the contracting parties also appears inconsistent with an intent to extend the release to unaffiliated third parties. We conclude that in view of these ambiguities, the trial court erred by granting summary judgment in favor of strangers to the contract who raised the release as a defense. Our reversal of the judgment on that ground renders moot a cross-appeal by defendants from the trial court’s denial of their motion for attorney fees.
A. Initiation of Suit
This matter was previously before us in Epic Communications, Inc. v. Richwave Technology , Inc. (2009) 179 Cal.App.4th 314 [101 Cal.Rptr.3d 572] (Epic I), review denied February 18, 2010, where we described the background of the suit in some detail. To summarize, Epic Communications Inc. (Epic) brought this action against ALi Corporation (ALi), Richwave Technology, Inc. (Richwave), and Shyh-Chyi Wong, alleging that ALi had transferred certain of Epic’s intellectual property to Wong and Richwave in violation of agreements between Epic’s predecessor in interest, OEpic Inc. (OEpic), and ALi. Specifically, Epic alleged that OEpic and ALi had agreed to cooperate in developing a power amplifier for use in wireless networking devices. (Id. at p. 319.) In connection with those efforts they entered into a nondisclosure agreement (NDA) in which they undertook not to make any other use of the information they exchanged in connection with their joint activities. Wong signed the agreement on ALi’s behalf as the associate vice-president of its “ ‘RF/Communications’ ” unit. (Id. at p. 319.) In February 2003, after negotiations largely conducted through Wong, ALi and OEpic entered into a design services agreement (DSA) under which OEpic would design an amplifier for ALi’s use. This agreement too prohibited ALi from disclosing any confidential information it might acquire from OEpic. (Id. at pp. 320-321.)
At the end of 2003, Wong formed Richwave, which she and others described as a “spin-off” of the RF unit. (Epic I, 179 Cal.App.4th at p. 321.)
According to Epic, OEpic continued to transfer intellectual property to Wong’s team based upon assurances that ALi’s rights and obligations under the DSA had been or would be assumed by Richwave. However, Richwave subsequently disclaimed any need for OEpic’s services, and ALi disclaimed any further obligation to OEpic on the ground that it had not used and would not use any of the OEpic’s intellectual property in its products. (Id. at pp. 321-323.) In November 2004, Epic was formed and became successor to all of OEpic’s interest in the matter. (Id. at p. 325.)
Epic brought this action in 2006 alleging that ALi had “breached both the nondisclosure agreement and the design services agreement ‘by allowing Richwave to access and use Epic’s... confidential information, ’ as a result of which ‘Epic has suffered economic loss....’ ” (Epic I, 179 Cal.App.4th 325.) Additional causes of action charged ALi, Wong, and Richwave with fraud, misappropriation of trade secrets, civil conspiracy, and unfair competition. (Id. at pp. 325-326.)
Wong and Richwave moved to quash service, asserting that they lacked sufficient contacts with California to be subject to suit in its courts. (Epic I, 179 Cal.App.4th at p. 326.) The trial court granted the motion, and Epic appealed. (Ibid.)
B. Arbitration and Settlement
While Epic pursued its appeal from the order quashing service on Wong and Richwave, its claims against ALi proceeded in the trial court. After the trial court granted ALi’s motion to compel arbitration, the claims were presented to a panel of arbitrators, who ultimately issued an award against ALi and in favor of Epic for a specified sum of money. The award concluded with the proviso, “Nothing in this ...