San Francisco Community
College District, VS Keenan
& Assoc
RG04183334
Minutes
Violence  in schools
Joint Powers Authority
(JPA) Executive Committee
Public Record Requests
SELF-Schools Liability

CIPRA

CAJPA

John Burnham Insurance

San Francisco Lawsuit

Insurance
Randy Ward Public
Records
Rodger Hartnett
Declaration
SDCOE
Diane Crosier

Lora Duzyk
Missing Tort Claim

All Claims Denied
Rodger Hartnett v. SDCOE
claim and complaint
Dan Puplava
CALA

CALA Gavel of Justice

Antitrust

Ethics in Education
Deposition of
Ray Artiano

(with SDCOE-JPA atty. Dan
Shinoff acting as Artiano's
counsel)
Did San Francisco Schools and their fellow plaintiffs want to
clean up the school insurance industry?

Or did they just want a cut of the spoils?  They settled the case, leaving the public
ignorant of the truth of the allegations.
Keenan finds growth
with government niche
San Francisco Business Times
by Chris Rauber
November 28, 2008

Keenan & Associates, the region’s
third-largest insurance brokerage, is
keen on rebranding itself as a cutting-
edge technology resource for
California school districts and other
public entities that use it to buy and
manage insurance and other
employee benefits.

The privately owned brokerage and
consulting firm is based in Torrance,
in Southern California, but has Bay
Area outposts in Oakland, Pleasanton,
Redwood City and San Jose, and has
built a successful niche business with
hospitals, medical groups, school
districts, community colleges and
other government entities. Recent
customer wins include the City of San
Ramon and Sacramento County,
according to Henry Loubet, its Oakland-
based senior vice president and chief
strategy officer. Loubet and Senior Vice
President John Scatterday are the firm’
s top Bay Area executives.

Other new Keenan clients include
three Sutter Health-affiliated medical
foundations for its new specialized
workers’ compensation program for
medical groups. The firm is highly
sensitive about releasing client
names, but says it has 450 customers
in Northern California, including San
Francisco-based Catholic Healthcare
West, Chabot Las Positas Community
College District and other major
hospitals, cities, counties, school
districts, transit authorities and public
agencies.

“Even in these challenging economic
times, we see that there’s opportunity
out there,” said Loubet, who contends
Keenan’s expertise in its niche and
increasing technological savvy can
help its customers — some of whom
are technically challenged due to
budget crunches — navigate their way
through the fiscal crisis.

Examples of specialized “private label”
products for customers include its
nearly 200,000-enrollee Keenan
Pharmacy Purchasing Coalition, or
KPPC, designed to provide lower
prices on pharmaceuticals to
enrollees in participating entities; the
MAGIC (Medical Affiliated Groups
Insurance of California) group self-
insurance program for workers’ comp
coverage; Futuris, a program to help
public agencies deal with new GASB
accounting standards and
requirements on setting up trusts for
retiree benefits and valuing and
disclosing retiree benefits; and the
BenefitBridge employee benefits portal.

Jane Rodriguez, a personnel
specialist at the Brentwood Union
School District, a K-8 district in the
East Bay, said Brentwood’s been a
Keenan client for 20-plus years, but
this summer it started implementing
BenefitBridge to make enrollment in
benefit programs and tracking of
employee data easier and more
efficient.

“We’re kind of in the baby stages of
implementation, but by the middle of
December we’ll be up and running on
all fronts,” she said. By next year, the
district’s roughly 625 benefits-eligible
employees will be able to use the web
site to sign up for coverage by Kaiser
Permanente, Anthem Blue Cross and
Delta Dental of California, plus
EyeMed Vision Care.

On the retirement benefits/GASB front,
Keenan reportedly is the only
insurance brokerage in that niche,
competing primarily with banks and
trust companies. In late July, Keenan
said the Orange Unified School District
funded its post-retirement health
benefits trust with a $95 million bond,
using Keenan’s Futuris program to
comply with relevant government
accounting standards.

More broadly, Loubet says the firm has
a 97 percent client retention rate,
which has helped it become one of the
region’s and the nation’s largest
brokerages, ranking 17th nationwide,
according to Business Insurance
magazine.
Keenan at a glance
Local headquarters: Oakland.
Top local executives:
John Scatterday, Henry Loubet.
Bay Area employees: 106.
Bay Area revenue (fiscal 2008):
Est. $47 million.
Overall revenue (fiscal 2008): $123
million.
Source: Keenan
San Francisco Community
College Dist. v. Keenan &
Assoc
Fear Not Law.com
Filed 11/19/07
NOT TO BE PUBLISHED IN OFFICIAL
REPORTS

IN THE COURT OF APPEAL OF THE STATE
OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
A115994
(Alameda County Super. Ct. No. RG04183334)


This is the second appeal brought
by Keenan & Associates (Keenan),
in which it seeks to compel
nonsignatory, public entity plaintiffs
to arbitrate their claims against
Keenan by virtue of their
membership in various joint powers
agencies (JPAs).[1] In an unpublished
opinion (San Francisco Unified School
District v. Keenan & Associates (May
15, 2007, A112106 [Keenan I]), we
affirmed orders denying Keenans
motion to compel arbitration with
respect to claims asserted by San
Francisco Unified School District
(SFUSD) in the first and second
amended complaints.[2] The instant
appeal pertains to the order denying
Keenans motions to compel arbitration
of the claims asserted by SFUSD, San
Francisco Community College
District (SFCCD), Tuolumne Joint
Powers Authority (TJPA),[3]and the
People of the State of California, by
and through San Francisco City
Attorney Dennis Herrera (Herrera or
the People) (collectively the named
plaintiffs), in the fourth amended
complaint...

Accordingly, we affirm the order
denying Keenans motions to
compel arbitration.


I. FACTS AND PROCEDURAL HISTORY


A. Background

...The gist of the underlying action
is that Keenan, while acting on
behalf of various JPAs, of which the
public entity plaintiffs are
members,[4]abused its position of
trust to obtain kickbacks, improper
fees, and benefits from insurers to
whom they steer insurance
business for public entity clients.

The JPAs have contractual agreements
(JPA Agreements) with Keenan, in
which Keenan agreed to provide
various services, including general
administration, underwriting
administration, claims administration,
and risk management services. The
JPA Agreements contain arbitration
provisions. Although the named public
entity plaintiffs are members of the
JPAs,[5]they are not signatories to the
agreements between Keenan and the
JPAs.

The named public entity plaintiffs
seek classwide relief on behalf of
all California public entities
adversely affected by Keenans
misconduct. Similarly, the People
seek statewide restitution and
injunctive relief.


B. Initial Complaints and Prior Motions
to Compel Arbitration


In November 2004, the County of
Santa Clara filed a complaint on its
own behalf and on behalf of the
general public, alleging UCL
violations and breaches of fiduciary
duty committed by Keenan and
various other insurers. In January
2005, SFUSD was added as a plaintiff
in the first amended complaint.


Keenans first motion to compel
arbitration against SFUSD was granted
in part and denied in part in June 2005.
The trial court determined that SFUSD
was not bound to arbitrate its claims
against Keenan under the arbitration
provisions contained in written contracts
with two JPAs, of which SFUSD was a
member. However, the court granted
Keenans motion to compel arbitration of
SFUSDs claims arising solely in
connection with a July 2004 claims
administration services agreement
(Claims Agreement) between Keenan
and SFUSD that contained an
arbitration provision. The trial court
stayed the arbitration under the Claims
Agreement pursuant to Code of Civil
Procedure section 1281.2, subdivision
(c), pending resolution of the
nonarbitrable claims.


Following the filing of the second
amended complaint, which included
causes of action for breach of
contract and breach of fiduciary
duty, Keenan, based on SFUSDs
assertion of third party beneficiary
status, moved to compel arbitration and
for reconsideration of the June 2005
order. However, before those motions
were heard, a third amended complaint
was filed in November 2005, which
withdrew the contract cause of
action and third party beneficiary
assertions, and added SFCCD and
TJPA as plaintiffs...


In June 2006, SFCCD entered into a
service agreement with Keenan for a
web-based application named
BenefitBridge, which provides services
to manage, view and control various
aspects of employee benefits programs
(BenefitBridge Agreement). The
BenefitBridge Agreement contains an
arbitration provision.


C. Fourth Amended Complaint and
Current Motions to Compel Arbitration


In July 2006, while the appeal in
Keenan I was pending, a fourth
amended complaint was filed, which
added the People as a plaintiff. The
named public entity plaintiffs asserted
causes of action for breach of fiduciary
duty and Cartwright Act (Bus. & Prof.
Code,  16700 et seq.) violations.[6] The
People asserted a UCL claim based on
Keenans unfair business practices.
Keenan then filed four separate
motions seeking to compel SFUSD,
SFCCD, TJPA, and the People to
arbitrate the claims asserted in the
fourth amended complaint.


In October 2006, the trial court denied
the motions to compel. In so ruling, the
trial court explained that the named
public entity plaintiffs were not bound by
the arbitration agreements between
Keenan and the JPAs. With respect to
SFUSD, the trial court reaffirmed the
portion of the June 2005 order, staying
the arbitration under the Claims
Agreement.


Additionally, the trial court ruled that the
recent (June 2006) BenefitBridge
Agreement between SFCCD and
Keenan did not compel arbitration of
SFCCDs claims under the fourth
amended complaint. The court
explained that the BenefitBridge
Agreement was unrelated to the instant
action, which was commenced before
the arbitration clause was executed.


The court further explained that since
the named public entity plaintiffs were
not bound by the arbitration
agreements, there was no basis upon
which to order the People to arbitration.
As a separate basis for denying
Keenans motion as to the People, the
trial court ruled that the injunctive relief
claims were not arbitrable under Cruz v.
PacifiCare Health Systems, Inc. (2003)
30 Cal.4th 303, 320 (Cruz).


This appeal followed.


II. DISCUSSION...

1. Introduction


In Keenan I, we held that Keenan failed
to establish that SFUSD should be
bound to arbitrate its claims by reason
of SFUSDs purported third party
beneficiary status. We similarly held
that Keenan failed to demonstrate that
equitable estoppel, agency law, or
Government Code section 6508.1
compelled SFUSD to arbitrate its claims.


In the instant appeal, Keenan raises
substantially the same arguments that
we rejected in Keenan I. The gist of the
instant appeal is that because the
breach of fiduciary duty claims arise out
of Keenans performance under the JPA
Agreements, which benefit the named
public entity plaintiffs, the named
plaintiffs are bound to arbitrate their
claims as third party beneficiaries. In a
related equitable estoppel argument,
Keenan contends that the named
plaintiffs cannot accept the benefits of
the JPA Agreements and
simultaneously avoid the burden of
those agreements. Finally, Keenan
again argues that Government Code
section 6508.1 mandates arbitration of
the named plaintiffs claims. Nothing in
the instant appeal compels this court to
change its original conclusion that the
trial court properly denied the motions
to compel.


Public policy favors arbitration as an
expedient and economical method of
resolving disputes, thus relieving
crowded civil courts. However,
arbitration assumes that the parties
have elected to use it as an alternative
to the judicial process. [Citation.]
Arbitration is consensual in nature...

As we discussed in detail in Keenan I, a
nonsignatory is not bound by an
arbitration agreement, except in very
limited circumstances...

2. Third Party Beneficiary


Whether a third party is an intended
beneficiary or merely an incidental
beneficiary to the contract involves
construction of the parties intent,
gleaned from reading the contract as a
whole in light of the circumstances
under which it was entered. (Jones v.
Aetna Casualty & Surety Co. (1994) 26
Cal.App.4th 1717, 1725.) Although
numerous agreements are at issue in
the instant appeal, the JPA Agreements
are identical in all material respects.


As before, Keenan fails to identify any
language in the JPA Agreements
disclosing an intent of the JPAs and
Keenan to benefit the named
plaintiffs.[7] Rather, Keenan argues that
the parties intent to bind the JPA
members is irrelevant because the
named plaintiffs are seeking to exploit
the benefits of the JPA Agreements and
simultaneously avoid the burdens under
those contracts.


Contrary to Keenans assertion, the
absence of an intent to bind the named
plaintiffs in the JPA Agreements is
relevant. A third party beneficiary may
enforce a contract made for its benefit.
(Civ. Code,  1559.) However, [a]
putative third partys rights under a
contract are predicated upon the
contracting parties intent to benefit it.
[Citation.] . . . [T]he circumstance that a
literal contract interpretation would
result in a benefit to the third party is
not enough to entitle that party to
demand enforcement. [Citation.] (Hess
v. Ford Motor Co. (2002) 27 Cal.4th
516, 524, italics added.) In other words,
a benefitting third party is not
necessarily a third-party beneficiary.
(InterGen N.V. v. Grina (1st Cir. 2003)
344 F.3d 134, 147 (InterGen).) Here, all
that has been established is that the
named public entity plaintiffs are
members in the JPAs that separately
contracted for Keenans services.


Despite the lack of objective evidence
indicating the JPAs and Keenan
intended to confer special legal rights
on the named plaintiffs, Keenan
nonetheless contends the claims
asserted in the fourth amended
complaint are arbitrable under the
arbitration clauses in the JPA
Agreements. Keenan relies on the
principle that contracts providing for
arbitration of any controversy . . .
arising out of or relating to the contract
. . . [are] sufficiently broad to include
tort, as well as contractual, liabilities so
long as the tort claims have theirroots in
the relationship between the parties
which was created by the contract.
[Citations.] (Bos Material Handling, Inc.
v. Crown Controls Corp. (1982) 137
Cal.App.3d 99, 105-106, italics added;
see also Marsch v. Williams (1994) 23
Cal.App.4th 250, 255.) According to
Keenan, the public entity plaintiffs
breach of fiduciary claims have their
roots in the relationship created by the
JPA Agreements. However, in this
misguided attempt to apply the roots in
the relationships theory to the instant
case, Keenan overlooks the obvious:
The named public entity plaintiffs and
the People are not parties to the JPA
Agreements. Keenan offers no case
holding that the named plaintiffs can be
required to arbitrate simply because
their claims arise out of contractual
relationships in which they were not
parties.[8]


In sum, Keenan has not produced any
evidence that the JPAs and Keenan
intended to give every beneficiary
under the JPA Agreements, such as the
named public entity plaintiffs, the right
to sue under those agreements. It
follows that the named plaintiffs cannot
be bound to terms of contracts they did
not sign and are not even entitled to
enforce.


3. Equitable Estoppel


We are not persuaded by Keenans
renewed assertion that the named
plaintiffs are bound to arbitrate their
claims under a theory of equitable
estoppel. Civil Code section 1589
provides, A voluntary acceptance of the
benefit of a transaction is equivalent to
a consent to all the obligations arising
from it, so far as the facts are known, or
ought to be known, to the person
accepting. Civil Code section 3521
similarly provides, He who takes the
benefit must bear the burden.

Equitable estoppel precludes a party
from asserting rights he otherwise
would have had against another when
his own conduct renders assertion of
those rights contrary to equity...

The federal circuits that have
considered the doctrine of equitable
estoppel have uniformly accepted it, in
appropriate factual circumstances, as a
basis for compelling signatories to a
contract containing an arbitration
clause to arbitrate their claims against
nonsignatories...

Although federal courts generally have
been willing to estop a signatory from
avoiding arbitration with a nonsignatory
when the issues the nonsignatory is
seeking to resolve in arbitration are
intertwined with the agreement that the
estopped party has signed, [citation],
they have been hesitant to estop a
nonsignatory seeking to avoid
arbitration...

...Here, Keenan argues that the named
plaintiffs are bound by the arbitration
clauses in the JPA Agreements
because their breach of fiduciary claim
arises out Keenans services provided
to the JPAs under the JPA Agreements.
However, beyond this bare assertion,
Keenan does not provide any argument
supporting the application of estoppel
or Civil Code section 1589 in this case.
The breach of fiduciary duty claim
against Keenan, while factually related
to the JPA Agreements, is not
inextricably intertwined with those
agreements.[9]


In sum, Keenan has failed to establish
that the named plaintiffs claims are
intertwined with the JPA Agreements or
that the named plaintiffs have exploited
those agreements to the degree that
requires a finding of a direct benefit
estoppel. (See Bridas S.A.P.I.C. v.
Government of Turkmenistan, supra,
345 F.3d at pp. 361-362.) Accordingly,
we conclude that neither the doctrine of
equitable estoppel nor Civil Code
section 1589 requires the named
plaintiffs to arbitrate their claims against
Keenan.


4. Government Code Section 6508.1


Keenan again argues that the named
public entity plaintiffs are bound to the
arbitration provisions by Government
Code section 6508.1,[10]by virtue of
their membership in the JPAs. We
previously rejected this claim, finding
neither section 6508.1 nor Tucker Land
Co. v. State of California (2001) 94
Cal.App.4th 1191, 1200-1201 (holding
debts of JPA are debts of constituent
members unless otherwise agreed),
cited by Keenan, compelled arbitration
in this case. We reject this argument
again, as Keenan provides no authority
supporting the proposition that section
6508.1 grants JPAs the authority
(express or implied) to bind its members
to arbitration agreements in which they
were not signatories.


C. The BenefitBridge Agreement Does
Not Require SFCCD to Arbitrate its
Claims Asserted in the Fourth Amended
Complaint


Keenan insists that the trial court erred
in denying its motion to compel SFCCD
to arbitrate its claims asserted in the
fourth amended complaint because
those claims are encompassed within
the BenefitBridge Agreement. We
disagree.


The arbitration provision in the
BenefitBridge Agreement provides: Any
and all disputes that may arise out of or
relate to this Agreement, other
agreements or any other relationship
involving [SFCCD] and Keenan
(whether occurring prior to, as part of,
or after the signing of this Agreement),
shall first be resolved by good faith
negotiations between the parties with
the assistance of non-binding
mediation. In the event either party
determines that they are not able to
resolve the dispute through negotiation
and mediation, then the dispute shall be
submitted to, and resolved by, final and
binding arbitration . . . . Negotiation,
mediation and arbitration shall be the
exclusive means of dispute resolution
between [SFCCD] and Keenan and
their respective agents, employees,
officers and members.


The issue of arbitrability is a matter of
contract interpretation, which is a
question of law we review de novo in
the absence of conflicting evidence.
(Balandran v. Labor Ready, Inc. (2004)
124 Cal.App.4th 1522, 1527;
Brookwood v. Bank of America (1996)
45 Cal.App.4th 1667, 1670.) Under
either federal or state arbitration law,
when deciding whether the parties
agreed to arbitrate a certain dispute we
look to ordinary state-law principles that
govern the formation of contracts.
[Citations.] (First Options of Chicago,
Inc. v. Kaplan (1995) 514 U.S. 938,
944; see In re Tobacco Cases I (2004)
124 Cal.App.4th 1095, 1104.)
Accordingly, we apply ordinary rules of
California contract interpretation to give
effect to the mutual intent of the parties.
If the contractual language is clear and
explicit, it is determinative. (In re
Tobacco Cases I, supra, 124
Cal.App.4th at p. 1104.)


Here, the plain language of the
BenefitBridge Agreement establishes
that the arbitration requirement applies
to [a]ny and all disputes that may arise
out of . . . this Agreement,other
agreements or any other relationship
involving [SFCCD] and Keenan
(whether occurring prior to, as part of,
or after the signing of this Agreement) .
. . . (Italics added.) Although the
arbitration provision is undeniably
broad in its scope, other contractual
phrases within that provision limit its
application to future claims, rather than
preexisting ones...

The BenefitBridge Agreement is a
collateral services agreement between
SFCCD and Keenan that is unrelated to
allegations in the fourth amended
complaint regarding Keenans purported
misconduct in the procurement of
insurance for its public entity clients...

D. Herreras UCL Claim Is Not Subject to
Arbitration


Keenan argues that Herreras UCL claim
is subject to arbitration because it is
brought on behalf of the named public
entity plaintiffs who derive their claims
from the services provided to the JPAs
through the JPA Agreements. This
argument fails as a matter of fact and
law.


As a matter of fact, Herrera seeks
an injunction and restitution on
behalf of the People of the State of
California... ; governments right to
prosecute UCL claim is separate from,
and not derivative of, the right of an
individual victim of said unfair business
practices...


In so holding, the court reasoned that
an action to enjoin deceptive business
practices is undertaken for public,
rather than private, benefit. ...
Consequently, there is an inherent
conflict between the public policy in
favor of arbitration and the public
policies protected by Business and
Professions Code section 17200
injunctions that renders injunctive
claims inarbitrable. (Id. at p. 316.)...

We conclude there is no basis to
compel arbitration of Herreras UCL
claim.


E. The Trial Court Did Not Err in Staying
the Arbitration under the Claims
Agreement Pending Resolution of the
Nonarbitrable Claims

In Keenan I, we held that the trial court
did not err in applying Code of Civil
Procedure section 1281.2, subdivision
(c) (section 1281.2(c)), which stayed
the arbitration under the Claims
Agreement pending resolution of the
nonarbitrable claims...

We are unpersuaded by Keenans
contention that section 1281.2(c) has
not been triggered because it is the
sole remaining defendant in the action...

We also reject Keenans argument that
section 1281.2(c) does not apply
because the claims of the named
plaintiffs do not arise out of the same
transaction and involve no overlap of
claims. In the underlying action, the
named public entity plaintiffs each
assert the same cause of action for
breach of fiduciary duty against Keenan
based on the allegations that
Keenan abused its position of trust
to obtain kickbacks, improper fees,
and benefits from insurers to whom
they steer insurance business for
public entity clients.

Similarly, Herreras unfair business
practices claim is premised upon
the same type of misconduct. In light
of this factual overlap, the trial court did
not abuse its discretion in staying the
arbitration under the Claims Agreement.


III. DISPOSITION

The October 2006 order denying
Keenans motions to compel
arbitration is affirmed. SFUSD,
SFCCD, TJPA, and Herrera are
entitled to their costs on appeal.

Reardon, J.

We concur:
Ruvolo, P.J.
Rivera, J.
"...allegations that Keenan
abused its position of trust to
obtain kickbacks, improper fees,
and benefits from insurers to
whom they steer insurance
business for public entity clients."
San Francisco Unified School
Dist. v. Keenan & Associates

IN THE COURT OF APPEAL OF THE STATE
OF CALIFORNIA FIRST APPELLATE
DISTRICT DIVISION FOUR

May 15, 2007

SAN FRANCISCO UNIFIED SCHOOL
DISTRICT, PLAINTIFF AND RESPONDENT,
v.
KEENAN & ASSOCIATES, DEFENDANT AND
APPELLANT.

(Alameda County Super. Ct. No.
RG04183334).

The opinion of the court was delivered by:
Reardon, J.

NOT TO BE PUBLISHED IN OFFICIAL
REPORTS

California Rules of Court, rule 8.1115(a),
prohibits courts and parties from citing or
relying on opinions not certified for
publication or ordered published, except as
specified by rule 8.1115(b). This opinion has
not been certified for publication or ordered
published for purposes of rule 8.1115.

Defendant Keenan & Associates (Keenan)
appeals from an order denying its motion to
compel plaintiff San Francisco Unified
School District (SFUSD) to arbitrate its
claims against Keenan pursuant to
arbitration clauses contained in agreements
between Keenan and two joint powers
agencies (JPA's).*fn1 Although SFUSD is a
member of the JPA's, it is not a signatory to
the agreements between Keenan and the
JPA's. Keenan, nonetheless, claims it is
entitled to enforce the arbitration provisions
because SFUSD is a third party beneficiary
of the contracts; SFUSD, by reason of its
membership in the JPA's, is bound by
Government Code section 6508.1 to
assume the obligations of the JPA's; and the
principles of equitable estoppel and agency
apply. Keenan further claims that all
proceedings between it and SFUSD should
be stayed pending completion of arbitration.
Additionally, Keenan appeals from an order
denying its motion for reconsideration of the
order denying its motion to compel
arbitration. We affirm the orders denying
Keenan's motion to compel arbitration and
motion for reconsideration.

I. FACTUAL AND PROCEDURAL
BACKGROUND

A. The Parties

Keenan is an insurance broker that helps
public entities to purchase insurance from
insurers. Typically, public entities, like
SFUSD, purchase their insurance as
members of insurance pools or JPA's. As
part of its services, Keenan also assists
public entities with operation of the JPA's. As
relevant here, Keenan acts as an insurance
broker for the Northern California Regional
Liability Excess Fund Joint Powers Authority
(Nor Cal) and the Schools Association for
Excess Risk Joint Powers Authority
(SAFER). SFUSD is a member of Nor Cal
and SAFER.

B. The JPA Agreements

In 1998 and 2003, Keenan entered into
management services agreements with Nor
Cal (Nor Cal Agreements); Keenan also
entered into a similar agreement with
SAFER in 2002 (SAFER Agreement). In the
Nor Cal Agreements and the SAFER
Agreement (collectively referred to as the
JPA Agreements), Keenan agreed to
provide services that included general
administration, underwriting administration,
claims administration, and risk management
services. The JPA Agreements contain
arbitration clauses.

C. The Claims Agreements

In July 2004, Keenan entered into a claims
administration services agreement with
SFUSD, in which Keenan agreed to
administer property or liability claims for
SFUSD (Claims Agreement). The Claims
Agreement contains an arbitration provision.
SFUSD is a signatory of the Claims
Agreement.

D. Initial Complaints Against Keenan and
First Motion to Compel Arbitration

In November 2004, the County of Santa
Clara filed a complaint on its own behalf, on
behalf of the general public, and on behalf
of other similarly situated public entities,
alleging violations of Business and
Professions Code sections 17200 et seq.
and 17500 et seq., and breach of fiduciary
duty against Keenan; Driver Alliant
Insurance Services, Inc. (Driver); and Marsh
& McLennan Companies, Inc., Marsh Inc.,
and Marsh USA, Inc. (collectively, Marsh).
The complaint alleged that defendants are
the primary insurance brokers that serve
California counties, schools and cities. The
complaint further alleged that defendants
have abused their positions of trust with
their clients to obtain kickbacks, improper
fees, and benefits from insurers to whom
they steer insurance business for public
entity clients.

In January 2005, the County of Santa Clara
filed an amended complaint, alleging the
same essential causes of action and adding
SFUSD as a plaintiff. Keenan moved to
compel arbitration of SFUSD's claims
against it and to stay the trial court
proceedings. (See Code Civ. Proc., §
1281.4.)

In June 2005, the trial court granted in part
and denied in part Keenan's motion to
compel arbitration. The court determined
that SFUSD was not bound by the JPA
Agreements because it was not a signatory
of those agreements. However, the court
granted Keenan's motion to compel
arbitration of claims arising solely in
connection with the Claims Agreement, and
stayed arbitration of these claims pending
resolution of SFUSD's nonarbitrable claims.
(Code Civ. Proc., § 1281.2, subd. (c)
(hereafter section 1281.2(c).)

E. Initial Complaints Against Keenan and
First Motion to Compel Arbitration

In August 2005, SFUSD filed a second
amended complaint, alleging breach of
fiduciary duty; breach of contract; breach of
the implied covenant of good faith and fair
dealing; violation of the Cartwright Act; and
unjust enrichment. In support of its causes
of action for breach of contract and breach
of the implied covenant of good faith and fair
dealing, SFUSD alleged that it was an
intended third party beneficiary of the JPA
Agreements.

Keenan filed a motion for reconsideration of
the court's June 2005 order, arguing that
SFUSD's assertion that it was a third party
beneficiary of the JPA Agreements was "a
fact that did not exist" when it originally
brought its motion to compel arbitration.
Keenan further claimed that SFUSD, as an
asserted third party beneficiary, was bound
by the JPA Agreements. Keenan also filed a
renewed motion to compel arbitration
regarding all of SFUSD's claims raised in the
second amended complaint. Following
Keenan's motions, SFUSD filed a third
amended complaint, removing the claims for
breach of contract and breach of the implied
covenant of good faith and fair dealing, and
adding San Francisco Community College
District and Tuolumne Joint Powers Authority
as plaintiffs.

In November 2005, the trial court denied
Keenan's motion for reconsideration and
renewed motion to compel arbitration. The
trial court rejected Keenan's argument that
SFUSD's allegation of third party beneficiary
status in the second amended complaint
constituted new facts for purposes of relief
under Code of Civil Procedure section 1008.
In so ruling, the court explained that
allegations regarding a party's status are
not admissions of fact, but rather are "an
articulation of a legal theory of recovery,
based on factual allegations that did not
substantively change from the [first
amended complaint] to the [second
amended complaint] (or the proposed [third
amended complaint])." The court also noted
that SFUSD had withdrawn its contract
causes of action in its third amended
complaint, and was no longer asserting a
theory of recovery vis-...-vis the JPA
Agreements. The court further denied
Keenan's renewed motion to compel
arbitration because the "denial of Keenan's
earlier motion to compel arbitration was
based in large part on the very limited
language of the arbitration provisions in the
[JPA Agreements], which, of course, remains
unchanged." In denying the motion for
reconsideration and the motion to compel
arbitration, the court explained that nothing
presented in Keenan's motion compelled it
"to change its original conclusion that the
signatories to the agreements did not intend
that the members of the JPAs be bound to
arbitration."

II. DISCUSSION

A. Standard of Review and Applicable Law

1. Standard of Review

"Whether an arbitration agreement applies
to a controversy is a question of law to which
the appellate court applies its independent
judgment where no conflicting extrinsic
evidence in aid of the interpretation was
introduced in the trial court." (Brookwood v.
Bank of America (1996) 45 Cal.App.4th
1667, 1670; see NORCAL Mutual Ins. Co. v.
Newton (2000) 84 Cal.App.4th 64, 71
(NORCAL).) To the extent the issues on
appeal present factual questions (see, e.g.,
Metalclad Corp. v. Ventana Environmental
Organizational Partnership (2003) 109
Cal.App.4th 1705, 1716 [estoppel]
(Metalclad); Inglewood Teachers Assn. v.
Public Employment Relations Bd. (1991) 227
Cal.App.3d 767, 780 [agency]), they require
a review for substantial evidence (NORCAL,
supra, 84 Cal.App.4th at p. 71). Here,
however, there is no conflicting evidence, so
the issues remain questions of law to which
we apply de novo review. (van't Rood v.
County of Santa Clara (2003) 113
Cal.App.4th 549, 562; NORCAL, supra, 84
Cal.App.4th at pp. 71-72.)

2. Applicability of the Federal Arbitration Act

The Federal Arbitration Act (FAA) applies to
contractual arbitration in written agreements
that involve interstate or foreign commerce.
(9 U.S.C. §§ 1, 2.) Here, Keenan's
declarations in support of the motion to
compel arbitration stated that, as part of its
claims and administration services, it
interacts with out-of-state insurers. (See
Basura v. U.S. Home Corp. (2002) 98
Cal.App.4th 1205, 1213-1214 [FAA applies
to contracts relating to interstate commerce];
see also Allied-Bruce Terminex Cos. v.
Dobson (1995) 513 U.S. 265, 274). Thus,
inasmuch as the JPA Agreements involve
interstate commerce, they are subject to the
FAA. (See Basura v. U.S. Home Corp.,
supra, at pp. 1213- 1214.) However, the
2003 Nor Cal Agreement provides that it is
governed by California law. The Claims
Agreement similarly contains a choice of
California law provision. Choice-of-law
provisions are given effect provided there is
no conflict with the policies underlying
federal law. (See Volt Info. Sciences v.
Leland Stanford Jr. U. (1989) 489 U.S. 468,
476 (Volt).) However, we point out that in
most areas, the FAA and California state law
overlap and the difference between the two
bodies of law does not impact our analysis,
unless otherwise noted. (See Rosenthal v.
Great Western Fin. Securities Corp. (1996)
14 Cal.4th 394, 406-407; Abramson v.
Juniper Networks, Inc. (2004) 115
Cal.App.4th 638, 651; Lagatree v. Luce,
Forward, Hamilton & Scripps (1999) 74
Cal.App.4th 1105, 1120-1121.)

B. The Trial Court Did Not Err in Denying the
Motions to Compel Arbitration

1. General Principles

"Public policy favors arbitration as an
expedient and economical method of
resolving disputes, thus relieving crowded
civil courts. However, arbitration assumes
that the parties have elected to use it as an
alternative to the judicial process. [Citation].
Arbitration is consensual in nature. The
fundamental assumption of arbitration is that
it may be invoked as an alternative to the
settlement of disputes by means other than
the judicial process solely because all
parties have chosen to arbitrate them.
[Citations.] Even the strong public policy in
favor of arbitration does not extend to those
who are not parties to an arbitration
agreement or who have not authorized
anyone to act for them in executing such an
agreement. `The right to arbitration depends
on a contract.' [Citations.]" (County of
Contra Costa v. Kaiser Foundation Health
Plan, Inc. (1996) 47 Cal.App.4th 237,
244-245 (County of Contra Costa).)

Therefore, as a general rule, a nonsignatory
is not bound by an arbitration agreement.
(See Westra v. Marcus & Millichap Real
Estate Investment Brokerage Co., Inc.
(2005) 129 Cal.App.4th 759, 763; Benasra
v. Marciano (2001) 92 Cal.App.4th 987, 990;
County of Contra Costa, supra, 47
Cal.App.4th at p. 245; see also Grundstad v.
Ritt (7th Cir. 1997) 106 F.3d 201, 204.)
However, there are certain limited
exceptions in which an arbitration agreement
can be enforced against nonsignatories
under traditional principles of contract and
agency law. (See Boucher v. Alliance Title
Co., Inc. (2005) 127 Cal.App.4th 262, 268
(Boucher); see also County of Contra Costa,
supra, 47 Cal.App.4th at pp. 242-243; E.I.
DuPont de Nemours v. Rhone Poulenc Fiber
(3d Cir. 2001) 269 F.3d 187, 194-195
(DuPont); Letizia v. Prudential Bache
Securities, Inc. (9th Cir. 1986) 802 F.2d
1185, 1187.)

For example, a nonsignatory has been
required to arbitrate a claim because a
benefit was conferred on the nonsignatory
as a result of a contract making the
nonsignatory a third party beneficiary of the
arbitration agreement. (See County of
Contra Costa, supra, 47 Cal.App.4th at p.
242; MS Dealer Service Corp. v. Franklin
(11th Cir. 1999) 177 F.3d 942, 947 [MS
Dealer].) A second exception exists when a
nonsignatory and one of the parties to the
arbitration agreement have a pre-existing
agency relationship. (See Madden v. Kaiser
Foundation Hospitals (1976) 17 Cal.3d 699,
702-709; County of Contra Costa, supra, 47
Cal.App.4th at p. 242.) A third exception
arises under the doctrine of equitable
estoppel. (See Boucher, supra, 127
Cal.App.4th at p. 268; MS Dealer, supra,
177 F.3d at p. 947.) Keenan contends that
each of these exceptions is applicable in the
present case. Also, for the first time on
appeal, Keenan asserts that Government
Code section 6508.1 requires SFUSD to
arbitrate its claims. We address each claim
in turn.

2. Third Party Beneficiary

Keenan maintains that SFUSD is required to
arbitrate under the JPA Agreements
because SFUSD alleged it was a third party
beneficiary to the agreements in its second
amended complaint. We disagree.

DuPont, supra, 269 F.3d 187, is analogous
to the instant case. There, as here, the
defendants asserted that the plaintiff was
bound to arbitrate its claims by reason of the
plaintiff's assertion in the initial complaint
that it was a third party beneficiary of the
contract. (Id. at p. 197.) Rejecting this
contention, the Third Circuit reasoned that
"although it was imprudent of [plaintiff] to
have alleged in its initial Complaint that it
was a third party beneficiary of the
[a]greement, the question of its status is
ultimately for us to decide under applicable
law." (Ibid.)

So too here, while it may have been
imprudent for SFUSD to have alleged in the
second amended complaint that it was a
third party beneficiary of the JPA
Agreements, the question of its status
remains subject to determination under
applicable law.

Contrary to Keenan's assertion,
determination of third party beneficiary
status involves more than mere allegations
in a complaint. "A third party beneficiary may
enforce a contract made for its benefit. (Civ.
Code, § 1559.) However, `[a] putative third
party's rights under a contract are
predicated upon the contracting parties'
intent to benefit' it. [Citation.] Ascertaining
this intent is a question of ordinary contract
interpretation. [Citation.] Thus, `[t]he
circumstance that a literal contract
interpretation would result in a benefit to the
third party is not enough to entitle that party
to demand enforcement.' [Citation.]" (Hess v.
Ford Motor Co. (2002) 27 Cal.4th 516, 524
(Hess).)

"Generally, it is a question of fact whether a
particular third person is an intended
beneficiary of a contract. [Citation.]
However, where, as here, the issue can be
answered by interpreting the contract as a
whole and doing so in light of the
uncontradicted evidence . . . , the issue
becomes one of law that we resolve
independently." (Prouty v. Gores
Technology Group (2004) 121 Cal.App.4th
1225, 1233; see also Hayes Children
Leasing Co. v. NCR Corp. (1995) 37
Cal.App.4th 775, 790.)

Here, the JPA Agreements are identical in all
material respects and their language
provides clear guidance. The 1998 Nor Cal
Agreement contains the following arbitration
provision: "It is the expectation of the parties
[Nor Cal and Keenan] that differences
between them shall be resolved privately,
professionally, and amicably. In the event
the parties are unable to resolve a
difference between them concerning the
application or interpretation of this
Agreement, the issue in dispute shall be
resolved by binding arbitration as the
exclusive remedy of the parties. The parties
agree to abide by the then current
commercial arbitration rules of the American
Arbitration Association."

The 2003 Nor Cal Agreement contains the
following arbitration provision: "If an
irreconcilable difference of opinion or claim
should arise between [Nor Cal] and
[Keenan] as the interpreters of any matter
relating to this AGREEMENT, such matter
shall be submitted to binding arbitration as
the sole remedy available to both parties.
Any such binding arbitration shall take place
as determined by the president of [Nor Cal]
and shall be conducted in accordance with
the then-current rules of the American
Arbitration Association." The SAFER
Agreement contains a similar arbitration
provision.

Applying the law of third party beneficiaries
to the language of the JPA Agreements
discloses no intent of the JPA's and Keenan
to benefit SFUSD. The JPA Agreements
provide for various general administration,
underwriting administration, claims
administration, and risk management
services to be provided by Keenan as
requested by the JPA's. Keenan fails to
identify any language in the JPA
Agreements that supports its assertion that
SFUSD is a third party beneficiary under
those contracts. Rather, Keenan relies on
the generic allegations of third party
beneficiary status asserted by SFUSD in its
second amended complaint.

A third party beneficiary contract must either
satisfy an obligation of the promisee to pay
money to the beneficiary, or the
circumstances indicate the promisee intends
to give the beneficiary the benefit of the
promised performance. (Medical Staff of
Doctors Medical Center in Modesto v. Kamil
(2005) 132 Cal.App.4th 679, 685-686 citing
1 Witkin, Summary of Cal. Law (9th ed.
1987) Contracts, § 655, pp. 594-595
[hospital medical staff did not receive
payment or health care services under
contract between hospital and insurer;
medical staff, therefore, was not third party
beneficiary].) Keenan fails to show that
either of those circumstances applies here.

All that has been established is that SFUSD
is a member of the JPA's that separately
contracted for Keenan's services. This,
however, is not enough. " `[T]he fact that a
person is directly affected by the parties'
conduct, or that he may have a substantial
interest in a contract's enforcement, does
not make him a third-party beneficiary.'
[Citation.]" (Bridas S.A.P.I.C. v. Government
of Turkmenistan (5th Cir. 2003) 345 F.3d
347, 362 (Bridas); see also Jones v. Aetna
Casualty & Surety Co. (1994) 26
Cal.App.4th 1717, 1724-1725 ["[t]he fact
that . . . the contract, if carried out to its
terms, would inure to the third party's
benefit, is insufficient to entitle him or her to
demand enforcement"].) "In other words, a
benefitting third party is not necessarily a
third-party beneficiary." (InterGen N.V. v.
Grina (1st Cir. 2003) 344 F.3d 134, 147
(InterGen).)

The critical fact remains that the JPA
Agreements neither mention nor manifest an
intent to confer specific legal rights upon
SFUSD. Consequently, Keenan may not
compel SFUSD to arbitrate its claims.

Keenan's third party beneficiary argument
fails for yet another, perhaps more obvious,
reason. None of SFUSD's amended claims
relate to its alleged third party beneficiary
status; rather, SFUSD alleges that Keenan
breached its fiduciary duties as a result of its
receipt of kickbacks and other improper
fees, which also violate the Cartwright Act
and constitute unjust enrichment. Those
claims, while arguably related to the
underlying JPA Agreements, do not relate to
any third party beneficiary status created at
the formation of the those agreements. (See
DuPont, supra, 269 F.3d at p. 197; but see
Comer v. Micor, Inc. (9th Cir. 2006) 436
F.3d 1098, 1102-1103 [disagreeing with
DuPont to extent it applies principle not
founded in contract or agency law].) To the
extent Keenan relies on authority holding
that a plaintiff may not avoid the
consequences of allegations in a complaint
by omitting such allegations in subsequent
pleadings, this authority is inapposite as it
relates to omissions of relevant facts within
the knowledge of the pleader. (See, e.g.,
Reichert v. General Ins. Co. (1968) 68
Cal.2d 822, 836-837 [status as a bankrupt];
Pierce v. Lyman (1991) 1 Cal.App.4th 1093,
1109 [known party to alleged civil
conspiracy]; Zappas v. King Williams Press,
Inc. (1970) 10 Cal.App.3d 768, 771-772,
773-775 [unlicensed broker]; Kenworthy v.
Brown (1967) 248 Cal.App.2d 298, 302
[date of contract].) As discussed,
determination of third party beneficiary
status is a matter of contract interpretation.
(See Hess, supra, 27 Cal.4th at p. 524.)

Finally, "[p]arties are presumed to be
contracting for themselves only." (Bridas,
supra, 345 F.3d at p. 362.) This
presumption is particularly compelling,
where, as here, a signatory to a contract
seeks to compel a nonparty to arbitrate its
claims. "It is one thing to permit a
nonsignatory to relinquish his right to a jury
trial, but quite another to compel him to do
so." (Benasra v. Marciano, supra, 92
Cal.App.4th at p. 991.) "[T]he right to pursue
claims in a judicial forum is a substantial
right and one not lightly to be deemed
waived. [Citations.]" (Marsch v. Williams
(1994) 23 Cal.App.4th 250, 254.) Here,
there is nothing in the JPA Agreements
establishing that SFUSD agreed to waive the
right to pursue its claims in a judicial forum.

3. Agency

Keenan next claims that SFUSD is bound to
arbitrate its claims under general principles
of agency because it is a member of Nor Cal
and SAFER.

"An agent is one who represents another,
called the principal, in dealings with third
persons. Such representation is called
agency." (Civ. Code, § 2295.) "An agency is
either actual or ostensible." (Id., § 2298.)
"An agency is actual when the agent is really
employed by the principal." (Id., § 2299.) "An
agency is ostensible when the principal
intentionally, or by want of ordinary care,
causes a third person to believe another to
be his agent who is not really employed by
him." (Id., § 2300.) The party asserting the
agency has the burden of proving both the
existence of the agency and the scope of
the agent's authority. (Inglewood Teachers
Assn. v. Public Employment Relations Bd.,
supra, 227 Cal.App.3d at p. 780.)

In the arbitration context, a nonsignatory
may be required to arbitrate its claims where
it is established that the signatory to the
contract has the authority to bind the
nonsignatory in some manner. (See County
of Contra Costa, supra, 47 Cal.App.4th at p.
243.) That is not the case here.

In County of Contra Costa, supra, 47
Cal.App.4th 237, this court reviewed
California case law regarding circumstances
in which nonsignatories have been held
bound by reason of a pre-existing
relationship between a nonsignatory and a
signatory. (Id. at pp. 242- 243.) For
example, spouses, children and heirs of
patients have frequently been required to
arbitrate medical malpractice claims. (Ibid.)
Employees have also been required to
arbitrate pursuant to agreements signed by
their employers. (Id. at p. 243; Madden v.
Kaiser Foundation Hospitals, supra, 17
Cal.3d at pp. 702-709 [statutes granted
state employers implied authority to contract
for medical plan on employees' behalf];
Harris v. Superior Court (1986) 188
Cal.App.3d 475, 477 [employee asserting
right to arbitrate].) "Likewise, the general
partner of a limited partnership is bound by
the arbitration agreement entered into by
the partnership and a third party. (Keller
Construction Co. v. Kashani (1990) 220
Cal.App.3d 222, 225-229 [].)" (County of
Contra Costa, supra, 47 Cal.App.4th at p.
243.)

The authority Keenan relies on is
inapposite. For example, in Dryer v. Los
Angeles Rams (1985) 40 Cal.3d 406, a
player sued his football team and four
individual agents, alleging that three of the
four individuals were sued in their capacities
as owners, operators and managing agents
of the team, and that all four of the
individuals were parties to (and had
breached) the player's contract with the
team. The individual defendants were
nonsignatories to contract between the
player and the team, which included an
arbitration provision. (Id. at p. 418.)
However, the individual defendants, joined
by the team, petitioned to compel arbitration.
(Id. at pp. 409, 418.) In that context, our
Supreme Court said the individual
defendants were entitled to the benefit of
the arbitration provisions. (Ibid.) Since
SFUSD has not asked for the benefit of the
JPA Agreements' arbitration provisions but
has, to the contrary, actively opposed
arbitration, Dryer is not applicable in the
instant case.

Similarly, Boys Club of San Fernando Valley,
Inc. v. Fidelity & Deposit Co. (1992) 6
Cal.App.4th 1266 (Boys Club), is equally
unpersuasive. There, a surety executed a
performance bond in favor of a youth group
assuring a contractor's performance of a
construction contract. (Id. at p. 1270.) The
performance bond incorporated by
reference the construction contract between
the youth group and the contractor, which
contained an arbitration clause. (Ibid.) In a
dispute between the youth club and the
contractor, the surety argued that it was not
bound to join the arbitration. (Id. at pp.
1272-1273.) Reversing the trial court's
denial of the petition to compel arbitration,
the appellate court held that the language in
the bond incorporating the contract bound
the surety to the arbitration clause, even
though the surety was not a party to the
original contract. (Id. at p. 1273.) In so
holding, the court explained that "[a]n
agreement need not expressly provide for
arbitration, but may do so in a secondary
document which is incorporated by
reference. [Citation.]" (Id. at p. 1271.)

Boys Club is obviously distinguishable.
Contrary to Keenan's assertion, this case
does not support finding an agency
relationship between the JPA's and SFUSD.
Rather, Boys Club stands for the proposition
that a party may be bound by an arbitration
clause in a contract between other persons
that has been incorporated by reference
into a party's contract. (Boys Club, supra, 6
Cal.App.4th at p. 1271.) Here, no
comparable incorporation argument exists.
Finally, to the extent Keenan relies on
Madden v. Kaiser Foundation Hospitals,
supra, 17 Cal.3d 699, that, too, is
distinguishable. There, in addition to the
statutes granting the state employer implied
authority to contract for medical plans on
behalf of its employees, the contract
contained express language binding the
employees to arbitration. (Id. at pp.
704-705.) Specifically, the contract stated
that " `[b]y electing medical and hospital
coverage pursuant to this [a]greement, or
accepting benefits hereunder, all [m]embers
. . . agree to all terms, conditions and
provisions hereof.' " (Id. at p. 704.) In
rejecting the employee's argument that she
was not bound to arbitrate her medical
malpractice claims, the court emphasized
that "[t]he arbitration agreement . . . bears
equally on Kaiser and the members." (Id. at
p. 711.) Here, as correctly noted by the trial
court, nothing in the language of the JPA
Agreements demonstrates the intent of the
signatories to bind the members of the JPA's
in a similar manner.

In sum, nothing in SFUSD's relationship with
the JPA's or the JPA Agreements, subjects
SFUSD to arbitration agreements signed by
Nor Cal and SAFER.

4. Equitable Estoppel

Keenan claims that the doctrine of equitable
estoppel requires SFUSD to arbitrate its
claims. In a related argument, Keenan, citing
Civil Code section 1589, contends that
SFUSD must arbitrate its claims because
SFUSD accepted the benefits of the JPA
Agreements and cannot avoid the burden of
those agreements.*fn2

Civil Code section 1589 provides in relevant
part, "A voluntary acceptance of the benefit
of a transaction is equivalent to a consent to
all the obligations arising from it, so far as
the facts are known, or ought to be known,
to the person accepting." Although not cited
by Keenan, Civil Code section 3521 similarly
provides, "He who takes the benefit must
bear the burden."

" `Equitable estoppel precludes a party from
asserting rights "he otherwise would have
had against another" when his own conduct
renders assertion of those rights contrary to
equity.' ([Inter. Paper v. Schwabedissen
Maschinen & Anlagen ([4th Cir. 2000]) 206
F.3d [411,] 417- 418 [International Paper].)
In the arbitration context, a party who has
not signed a contract containing an
arbitration clause may nonetheless be
compelled to arbitrate when he seeks
enforcement of other provisions of the same
contract that benefit him. (Id. at p. 418;
NORCAL[,supra,] 84 Cal.App.4th [at p.] 81
[].)" (Metalclad, supra, 109 Cal.App.4th at p.
1713.) "Restated, the doctrine of estoppel
prevents a party from `having it both ways.'
[Citation.]" (Washington Mut. Finance
Group, LLC v. Bailey (5th Cir. 2004) 364
F.3d 260, 268.)

"The federal circuits that have considered
the doctrine of equitable estoppel have
uniformly accepted it, in appropriate factual
circumstances, as a basis for compelling
signatories to a contract containing an
arbitration clause to arbitrate their claims
against nonsignatories. [Citations.]"
(Metalclad, supra, 109 Cal.App.4th at p.
1714; see MS Dealer, supra, 177 F.3d at p.
947; Grigson v. Creative Artists Agency (5th
Cir. 2000) 210 F.3d 524, 527.) "[U]nder both
federal and California decisional authority, a
nonsignatory defendant may invoke an
arbitration clause to compel a signatory
plaintiff to arbitrate its claims when the
causes of action against the nonsignatory
are `intimately founded in and intertwined'
with the underlying contract obligations.
[Citations.]" (Boucher, supra, 127
Cal.App.4th at pp. 271-272.)

"Although federal courts generally `have
been willing to estop a signatory from
avoiding arbitration with a nonsignatory
when the issues the nonsignatory is seeking
to resolve in arbitration are intertwined with
the agreement that the estopped party has
signed,' [citation], they have been hesitant
to estop a nonsignatory seeking to avoid
arbitration." (InterGen, supra, 344 F.3d at
pp. 145-146, second italics added.) In such
instances, "estoppel has been limited to
`cases [that] involve non-signatories who,
during the life of the contract, have
embraced the contract despite their
non-signatory status but then, during
litigation, attempt to repudiate the arbitration
clause in the contract.' [(DuPont, supra, 269
F.3d at p. 200]; accord Am. Bureau of
Shipping v. Tencara Shipyard S.P.A. [(2d
Cir. 1999)] 170 F.3d 349, 353 [] (holding a
nonsignatory bound by a contract under
which it received the direct benefits of lower
insurance rates and the ability to sail under
the French Flag)." (InterGen, supra, 344
F.3d at p. 146.) Under federal decisional
law, "[a] nonsignatory is estopped from
refusing to comply with an arbitration clause
`when it receives a "direct benefit" from a
contract containing an arbitration clause.'
[Citations.]" (International Paper, supra, 206
F.3d at p. 418.) "Direct benefits estoppel
applies when a nonsignatory `knowingly
exploits the agreement containing the
arbitration clause.' [Citations.]" (Bridas,
supra, 345 F.3d at pp. 361-362.)

For example in International Paper, supra,
206 F.3d 411, the Fourth Circuit held that a
nonsignatory was estopped from avoiding
arbitration where it sued to enforce warranty
provisions in a contract. (Id. at pp. 413-414,
418.) There, a buyer of an industrial saw
brought suit against the manufacturer of the
saw on the basis of a contract between the
manufacturer and the distributor of the saw,
which contained an arbitration clause. (Id. at
pp. 413-414.) The court concluded that "the
buyer cannot sue to enforce the guarantees
and warranties of the
distributor-manufacturer contract without
complying with its arbitration provision . . . ."
(Ibid.) In so holding, the court reasoned:
"The [distributor-manufacturer] contract
provides part of the factual foundation for
every claim asserted by [buyer] against
[manufacturer]. In its amended complaint,
[buyer] alleges that [manufacturer] failed to
honor the warranties in the
[distributor-manufacturer] contract, and it
seeks damages, revocation, and rejection
`in accordance with' that contract. [Buyer's]
entire case hinges on its asserted rights
under the [distributor-manufacturer]
contract; it cannot seek to enforce those
contractual rights and avoid the contract's
requirement that `any dispute arising out of'
the contract be arbitrated." (Id. at p. 418,
italics added.)

Primarily relying on International Paper,
supra, 206 F.3d 411, Keenan argues that
SFUSD is bound by the arbitration clauses
in the JPA Agreements because SFUSD "is
knowingly relying on those very same
agreements to plead its case." However,
beyond asserting that SFUSD "alleged it is a
third-party beneficiary of the JPA
Agreements" and "alleged the JPA
Agreements create fiduciary duties that are
owed directly from Keenan to SFUSD,"
Keenan does not provide any argument
supporting the application of estoppel or
Civil Code section 1589 in this case.

In the third amended complaint, SFUSD
asserts causes of action for breach of
fiduciary duty, violations of the Cartwright
Act, and unjust enrichment. SFUSD's breach
of fiduciary duty claim against Keenan, while
factually related to the JPA Agreements, are
not inextricably intertwined with those
agreements. Rather, the third amended
complaint alleges that Keenan, as an
insurance broker, has certain fiduciary and
other duties, including the duties of due
care, candor and loyalty, which arise under
California law.

Moreover, SFUSD has not inequitably made
use of or sought enforcement of the JPA
Agreements while denying the applicability
of the arbitration clauses of those
agreements. That SFUSD may have initially
alleged it was a third party beneficiary under
the JPA Agreements is insufficient, standing
alone, to justify the application of equitable
estoppel, especially since there is no
evidence that the contracting parties
intended to benefit SFUSD.

In sum, Keenan has failed to establish that
SFUSD's claims are "intertwined" with the
JPA Agreements or that SFUSD has
"exploited" those agreements to the degree
that requires a finding of a "direct benefit"
estoppel. (See Bridas, supra, 345 F.3d at
pp. 361-362.) Accordingly, we conclude that
neither the doctrine of equitable estoppel
nor Civil Code section 1589 requires SFUSD
to arbitrate its claims against Keenan.

5. Government Code Section 6508.1

Keenan argues that SFUSD is bound to the
arbitration provisions by Government Code
section 6508.1 by virtue of its membership in
the JPA's. Although Keenan did not suggest
this theory to the trial court, it presents only
a question of law and is therefore cognizable
in this appeal. (Sanchez v. Truck Ins.
Exchange (1994) 21 Cal.App.4th 1778,
1787.)

Government Code section 6508.1 is part of
the Joint Exercise of Powers Act (see Gov.
Code, § 6500 et seq.), which authorizes
public entities to form JPA's, and provides as
follows: "If the agency is not one or more of
the parties to the agreement but is a public
entity, commission, or board constituted
pursuant to the agreement, the debts,
liabilities, and obligations of the agency shall
be debts, liabilities, and obligations of the
parties to the agreement, unless the
agreement specifies otherwise. [¶] A party to
the agreement may separately contract for,
or assume responsibility for, specific debts,
liabilities, or obligations of the agency."
(Italics added.)

Citing Tucker Land Co. v. State of California
(2001) 94 Cal.App.4th 1191, 1198 (Tucker),
Keenan argues that Government Code
section 6508.1 imposes liability on SFUSD to
arbitrate its claims under the JPA
Agreements. Keenan's reliance on Tucker is
misplaced.

Tucker involved a declaratory relief action in
which a land company sought a declaration
that the constituent members of a joint
powers agency were jointly and individually
liable for the obligations of the agency to the
plaintiff on an underlying judgment in the
plaintiff's favor; that the State of California
was liable to the plaintiff because all
constituent members were state agencies;
and that the constituent members were
liable as alter egos of the joint powers
agency. (Tucker, supra, 94 Cal.App.4th at
pp. 1194-1995.) The appellate court
affirmed the order granting the defendants'
motion for summary judgment. (Id. at pp.
1193, 1196.) In so holding, the court
explained that the joint powers agreement
specified that its constituent members were
not liable for the contractual obligations of
the joint powers agency, and did not provide
for liability other than that borne by the joint
powers agency itself. (Id. at p. 1193.) The
court further held that Government Code
section 6508.1, which sets forth the
responsibility of constituent agencies for the
obligations of a joint powers agency, means
what it plainly says: that the debts of the
joint powers agency are the debts of its
constituent entities unless the agreement
specifies otherwise. (Tucker, supra, 94
Cal.App.4th at pp. 1198, 1200-1201.)
There, "the agreement specified otherwise,
i.e., that the constituent entities would not be
responsible for the debts of the JPA." (Id. at
p. 1201.) It was further established beyond
dispute that there was no liability on the part
of the constituent entities as alter egos. (Id.
at pp. 1201-1202.)

Tucker is factually distinguishable from the
instant case. There, unlike here, the issue
was not whether a nonsignatory member
could be bound to arbitrate its claims under
separate contracts between the JPA's and
another party. Rather, the issue was
whether constituent members of a JPA could
be liable for the contractual obligations of
the JPA, where the joint exercise of powers
agreement specified that the members were
not liable for such debts. (Tucker, 94
Cal.App.4th at pp. 1193-1194 & fn. 1.) Even
assuming arguendo, that the joint exercise
of powers agreement between SFUSD and
the JPA's*fn3 do not contain any language
opting out of Government Code section
6508.1, Keenan provides no authority, nor
has any been found by this court, which
supports the proposition that section 6508.1
grants JPA's the authority (express or
implied) to bind its members to arbitration
agreements in which they were not
signatories. We decline to do so here.

C. The Trial Court Did Not Err in Applying
Code of Civil Procedure Section 1281.2(c)

The trial court ordered that SFUSD's claims
that have arisen solely in connection with
Keenan's services under the Claims
Agreement for the July 1, 2004 to June 30,
2005 term be severed from its remaining
claims and submitted to arbitration.
However, pursuant to Code of Civil
Procedure section 1281.2(c), the trial court
stayed the arbitration pending the resolution
of SFUSD's nonarbitrable claims. Keenan
argues the trial court erred by applying
section 1281.2(c) because the FAA (9
U.S.C. § 3) and California law (Code Civ.
Proc., § 1281.4) both mandate a stay of the
litigation pending completion of arbitration.
We disagree.

Section 3 of the FAA provides, "If any suit or
proceeding be brought in any of the courts
of the United States upon any issue
referable to arbitration under an agreement
in writing for such arbitration, the court in
which such suit is pending, upon being
satisfied that the issue involved in such suit
or proceeding is referable to arbitration
under such an agreement, shall on
application of one of the parties stay the trial
of the action until such arbitration has been
had in accordance with the terms of the
agreement . . . ." (9 U.S.C. § 3.)

However, where, as here, arbitration under a
contract containing a choice of California law
provision has been ordered,*fn4 section
1281.2(c) may be applied. Section 1281.2
provides, "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, unless it determines that: [¶] . . . [¶]
(c) A party to the arbitration agreement is
also a party to a pending court action or
special proceeding with a third party, arising
out of the same transaction or series of
related transactions and there is a possibility
of conflicting rulings on a common issue of
law or fact." (§ 1281.2(c).) In this latter
circumstance, "the court (1) may refuse to
enforce the arbitration agreement and may
order intervention or joinder of all parties in
a single action or special proceeding; (2)
may order intervention or joinder as to all or
only certain issues; (3) may order arbitration
among the parties who have agreed to
arbitration and stay the pending court action
or special proceeding pending the outcome
of the arbitration proceeding; or (4) may
stay arbitration pending the outcome of the
court action or special proceeding." (Ibid.)
Case law has recognized that section
1281.2(c) does not contradict the FAA's
policy of favoring arbitration.

In Volt, supra, 489 U.S. 468, the United
States Supreme Court upheld section
1281.2(c)'s application to an arbitration
provision governed by the FAA. The
contract at issue, a construction agreement
for work to be performed in California,
contained a clause applying " `the law of the
place where the Project is located.' " (Volt,
supra, 489 U.S. at p. 470.) The high court
rejected a preemption claim, declaring the
FAA "do[es] not prevent application of
[section 1281.2(c)] to stay arbitration where,
as here, the parties have agreed to arbitrate
in accordance with California law." (Volt,
supra, 489 U.S. at p. 477.) It also
acknowledged "California has taken the lead
in fashioning a legislative response"
governing "the special practical problems
that arise in multiparty contractual disputes
when some or all of the contracts at issue
include agreements to arbitrate" (id. at p.
476, fn. 5), and held, "[i]nterpreting a
choice-of-law clause to make applicable
state rules governing the conduct of
arbitration-rules which are manifestly
designed to encourage resort to the arbitral
process-simply does not offend the rule of
liberal construction . . . , nor does it offend
any other policy embodied in the FAA" (id. at
p. 476, fn. omitted). In so holding, the court
explained, "[w]here, as here, the parties
have agreed to abide by state rules of
arbitration, enforcing those rules according
to the terms of the agreement is fully
consistent with the goals of the FAA, even if
the result is that arbitration is stayed where
the [FAA] would otherwise permit it to go
forward." (Id. at p. 479.)

California cases also support this
conclusion. In Mount Diablo Medical Center
v. Health Net of California, Inc. (2002) 101
Cal.App.4th 711, 726-727 (Mount Diablo),
another division of this court affirmed the
use of section 1281.2(c) to deny a motion
seeking to compel arbitration under an
agreement governed by the FAA. There, the
choice-of-law clause provided that " `the
validity, construction, interpretation and
enforcement of this [a]greement' shall be
governed by California law." (Mount Diablo,
supra, 101 Cal.App.4th at p. 722.) The court
determined that "[t]he choice-of-law
provision in the present case may be
`generic' in the sense that it does not
mention arbitration or any other specific
issue that might become a subject of
controversy, but it is nonetheless broad,
unqualified and all-encompassing." (Ibid.) In
affirming, the court declared that "[s]section
1281.2(c) is not a provision designed to limit
the rights of parties who choose to arbitrate
or otherwise to discourage the use of
arbitration," but "is part of California's
statutory scheme designed to enforce the
parties' arbitration agreements, as the FAA
requires." (Mount Diablo, supra, 101
Cal.App.4th at p. 726.)

Recently, the California Supreme Court
approved this interpretation of section
1281.2(c) in Cronus Investments, Inc. v.
Concierge Services (2005) 35 Cal.4th 376,
380, 387 (Cronus). There, the choice-of-law
provision provided: " `This agreement shall
be construed and enforced in accordance
with and governed by the laws of the State
of California, without giving effect to the
conflict of laws provisions thereof.' " (Ibid.)
Also, the parties seemed to "agree that the
broad choice-of-law provision generally
incorporates California law, including the
California Arbitration Act . . . [citation], of
which section 1281.2(c) is a part." (Ibid.)
The court held that section 1281.2(c) is not
a special rule limiting the authority of
arbitrators, but rather "an evenhanded law
that allows the trial court to stay arbitration
proceedings while the concurrent lawsuit
proceeds or stay the lawsuit while arbitration
proceeds to avoid conflicting rulings on
common issues of fact and law amongst
interrelated parties." (Id. at p. 393, italics
omitted.) Quoting Mount Diablo, our
Supreme Court explained that section
1281.2(c) "addresses the peculiar situation
that arises when a controversy also affects
claims by or against other parties not bound
by the arbitration agreement" and grants the
"court discretion not to enforce the
arbitration agreement under such
circumstances-in order to avoid potential
inconsistency in outcome as well as
duplication of effort . . . ." (Ibid.)

Keenan argues that Cronus and Mount
Diablo do not apply because the contracts in
those cases specifically provided that the
agreements would be enforced under
California law. Here, the Claims Agreement
provides that it "shall be governed by and
interpreted in accordance with the laws of
the State of California." Relying on
Mastrobuono v. Shearson Lehman Hutton,
Inc. (1995) 514 U.S. 52, 62 (Mastrobuono),
Keenan argues that generic choice-of-law
provisions do not incorporate state laws
regarding arbitration. The agreement in
Mastrobuono provided only that it " `shall be
governed by the laws of the State of New
York.' '' (Mastrobuono, supra, 514 U.S. at p.
53.) "The circumstances in Mastrobuono
were very different from those involved in
the present case. The issue there was
whether to apply New York decisional law,
which permitted punitive damages to be
awarded by courts but not by arbitrators (the
Garrity[*fn5 ]rule)." (Mount Diablo, supra,
101 Cal.App.4th at p. 719.) "The petitioners
argued that the FAA preempted the Garrity
rule, while the respondents relied on Volt,
arguing that the choice-of-law provision
incorporated state arbitration rules,
including the Garrity rule. The high court
responded: `At most, the choice-of-law
clause introduces an ambiguity into an
arbitration agreement that would otherwise
allow punitive damage awards. As we
pointed out in Volt, when a court interprets
such provisions in an agreement covered by
the FAA, "due regard must be given to the
federal policy favoring arbitration, and
ambiguities as to the scope of the arbitration
clause itself resolved in favor of arbitration."
[Citations.]' (Mastrobuono, supra, 514 U.S at
p. 62.) `We think the best way to harmonize
the choice-of- law provision with the
arbitration provision is to read "the laws of
the State of New York" to encompass
substantive principles that New York courts
would apply, but not to include special rules
limiting the authority of arbitrators. . . .' (Id.
at pp. 63-64, italics added.)" (Cronus, supra,
35 Cal.4th at pp. 392-393.)

However, section 1281.2(c), unlike the New
York rule involved in Mastrobuono, does not
involve a special rule limiting the authority of
arbitrators. (Cronus, supra, 35 Cal.4th at p.
393; Mount Diablo, supra, 101 Cal.App.4th
at p. 726.) " `Rather, it is part of California's
statutory scheme designed to enforce the
parties' arbitration agreements, as the FAA
requires. Section 1281.2(c) addresses the
peculiar situation that arises when a
controversy also affects claims by or against
other parties not bound by the arbitration
agreement. The California provision giving
the court discretion not to enforce the
arbitration agreement under such
circumstances-in order to avoid potential
inconsistency in outcome as well as
duplication of effort-does not contravene the
letter or the spirit of the FAA. That was the
explicit holding in Volt and nothing in
Mastrobuono casts doubt on that
conclusion.' (Mount Diablo, supra, 101
Cal.App.4th at p. 726.)" (Cronus, supra, 35
Cal.4th at p. 393.) Although the language in
the Claims Agreement differs from the
contracts in Cronus and Mount Diablo, we
find the underlying rationale of applying
section 1281.2(c) is, nonetheless, applicable
here. In other words, common issues of fact
and law will be resolved consistently, and
only once. (Mount Diablo, supra, 101
Cal.App.4th at p. 727.)

We are similarly unpersuaded by Keenan's
contention that section 1281.2(c) has not
been triggered because SFUSD's claims
against Keenan and its claims against the
other defendants (Marsh and Driver) do not
arise out of the same transaction and
involve no overlap of claims. The underlying
action challenges industry-wide kickback
practices alleged to be followed by all of the
defendants,*fn6 including Keenan, vis-...-vis
their dealings with the respective public
entities plaintiffs. The trial court did not
abuse its discretion in applying section
1281.2(c) under these circumstances, as it
is possible that arbitration could lead to
conflicting rulings in this multiparty action.
(Code Civ. Proc., § 1281.2(c); see also
Henry v. Alcove Investment, Inc. (1991) 233
Cal.App.3d 94, 101-102; Green v. Mt. Diablo
Hospital Dist. (1989) 207 Cal.App.3d 63, 75.)

Finally, contrary to Keenan's contention,
Code of Civil Procedure section 1281.4
does not mandate a stay of the instant
action. Where a matter has been ordered to
arbitration, "the court in which such action or
proceeding is pending shall, upon motion of
a party . . . , stay the action or proceeding
until an arbitration is had in accordance with
the order to arbitrate . . . ." (Code Civ. Proc.,
§ 1281.4.) "[O]ne of the purposes of this
statute `is to promote the expeditious and
efficient settlement of disputes and eliminate
multiplicity of actions.' [Citations.]" (McMillin
Development, Inc. v. Home Buyers Warranty
(1998) 68 Cal.App.4th 896, 910-911; see
also Marcus v. Superior Court (1977) 75
Cal.App.3d 204, 211-212.) Here, however,
the determination of SFUSD's nonarbitrable
claims against Keenan may make the
arbitration unnecessary. In other words,
staying the instant action pending the
resolution of the arbitrable claims could
result in the type of multiplicity of actions
Code of Civil Procedure section 1281.4 is
intended to prevent. Accordingly, the trial
court did not abuse its discretion in applying
section 1281.2(c).

D. The Trial Court Did Not Err in Denying
the Motion for Reconsideration

Finally, Keenan argues that the trial court
abused its discretion in denying its motion
for reconsideration.

Code of Civil Procedure section 1008,
subdivision (a), provides that a party may
seek reconsideration of an order "based
upon new or different facts, circumstances,
or law . . . ." Keenan argues that SFUSD's
allegations of third party beneficiary status
in the second amended complaint
constituted "new facts" for purposes of Code
of Civil Procedure section 1008. This
contention is without merit.

As discussed, the determination of a party's
status as a third party beneficiary is a matter
of contract interpretation. (Hess, supra, 27
Cal.4th at p. 524.) While the resolution of
this legal question typically involves a
question of fact, it, nonetheless, remains a
legal inquiry for the court. (See Prouty v.
Gores Technology Group, supra, 121
Cal.App.4th at p. 1233; see also DuPont,
supra, 269 F.3d at p. 197; Chacksfield v. L.
A. County Flood etc. Dist. (1966) 245
Cal.App.2d 193, 194-195 [no abuse of
discretion in sustaining demurrer without
leave to amend where cross-complaint
alleged "legal conclusion" regarding third
party beneficiary status].) Accordingly,
SFUSD's assertions in the second amended
complaint that it was a third party beneficiary
of the JPA Agreements did not constitute
new "facts" justifying the granting of
Keenan's motion for reconsideration.
Moreover, the basis of the trial court's denial
of Keenan's prior motion to compel
arbitration "was based in large part on the
very limited language of the arbitration
provisions in the [JPA Agreements], which,
of course, remain[ed] unchanged." The trial
court acted well within in its discretion in
denying Keenan's request for
reconsideration.

III. DISPOSITION

The orders denying Keenan's motion to
compel arbitration and motion for
reconsideration are affirmed. SFUSD is
entitled to its costs on appeal.

We concur: Ruvolo, P.J., Rivera, J.

Opinion Footnotes   *fn1 A JPA is a legally
independent entity created by a joint
exercise of powers agreement pursuant to
Government Code section 6500 et seq.

*fn2 Keenan raises this argument for the
first time in its reply brief. Normally,
contentions raised for the first time in a reply
brief are ignored. (See, e.g., Shade Foods,
Inc. v. Innovative Products Sales &
Marketing, Inc. (2000) 78 Cal.App.4th 847,
894- 895, fn. 10.) However, this argument
relates to Keenan's equitable estoppel
argument and presents a legal question on
undisputed facts. (See Barton v. New United
Motor Manufacturing, Inc. (1996) 43
Cal.App.4th 1200, 1207; see also Metalclad,
supra, 109 Cal.App.4th at p. 1716.) As such,
we consider this related argument on appeal.

*fn3 Keenan incorrectly points to the
language of the JPA Agreements, rather
than the language of the joint exercise of
powers agreements in which SFUSD agreed
to become a member of Nor Cal and
SAFER. Additionally, the record before us
contains only the joint exercise of powers
agreement between Nor Cal and SFUSD.

*fn4 Keenan mistakenly relies on the choice-
of- law provisions in the JPA Agreements
because arbitration under those agreements
was denied. In any event, the 2003 Nor Cal
Agreement contains a choice of California
law provision.

*fn5 Garrity v. Lyle Stuart, Inc. (1976) 40
N.Y.2d 354, 386.

*fn6 Keenan filed a request for judicial
notice along with its reply brief that requests
that we judicially notice a fourth amended
complaint in which Keenan is the sole
defendant, as well as an additional class
action filed by the County of Santa Clara
and the People of the State of California
against Driver. Keenan claims that the fourth
amended complaint establishes that
SFUSD's claims arise out of and are based
on the JPA Agreements. We deferred ruling
until the time of decision and now deny the
request for judicial notice. The fourth
amended complaint is the subject of a
second pending appeal by Keenan (case
No. A115994), which raises many of the
same arguments advanced in the instant
appeal. On March 27, 2007, we denied
Keenan's request to consolidate the two
appeals. Although the analysis in this
opinion may be applicable to the pending
appeal regarding the fourth amended
complaint, we address only the iterations of
the complaints that are before us.
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INVESTIGATION REVEALS
WIDESPREAD
CORRUPTION IN
INSURANCE INDUSTRY
Leading Brokerage Firm
Sued for Fraud and
Antitrust Violations;
Insurance Company
Executives Plead Guilty;
Major Insurance Firms
Implicated

Attorney General Spitzer
today sued the nation's
leading insurance
brokerage firm, alleging
that it steered
unsuspecting clients to
insurers with whom it had
lucrative payoff
agreements, and that the
firm solicited rigged bids
for insurance contracts.

Simultaneously, Spitzer
announced that two
insurance company
executives have pleaded
guilty to criminal charges
in connection with the
scheme.

The actions against the
brokerage firm, Marsh &
McLennan Companies, and
the two executives stem
from a widening
investigation of fraud and
anti-competitive practices
in the insurance industry.
Evidence revealed in
today's lawsuit also
implicates other major
insurance carriers.

"The insurance industry
needs to take a long,
hard look at itself,"
Spitzer said. "If the
practices identified in our
suit are as widespread as
they appear to be, then
the industry's
fundamental business
model needs major
corrective action and
reform."

"There is simply no
responsible argument for
a system that rigs bids,
stifles competition and
cheats customers," he
added.

Spitzer was joined at
news conference
announcing the actions
by New York State
Insurance Superintendent
Gregory V. Serio, who
said: "This has gone from
an inquiry into failure to
disclose compensation to
an active investigation of
bid rigging and improper
steering. This certainly
proves the adage that
where there is smoke,
there is fire."

The civil complaint filed
today in State Supreme
Court in Manhattan alleges
that for years Marsh
received special payments
from insurance companies
that were above and beyond
normal sales commissions.
These payments -- known
as "contingent commissions"
-- were characterized as
compensation for "market
services" but were, in fact,
rewards for the business
that Marsh and its
independent brokers
steered and allocated to the
insurance companies.
Industry representatives
defend this long-standing
practice as acceptable and
even beneficial to clients,
but the Attorney General's
office has uncovered
extensive evidence showing
that it distorts and corrupts
the insurance marketplace
and cheats insurance
customers.

In addition to steering
business to its insurance
company partners,
Marsh, at times, solicited
fake bids, which deceived
its customers into thinking
that true competition had
taken place. Marsh did
this even as it claimed in
public statements that its
"guiding principle" was to
always consider its
client's best interests.

Spitzer's complaint
against the company
cites internal
communications in which
executives openly discuss
actions that were aimed
at maximizing Marsh's
revenue and insurance
companies' revenues --
without regard to clients'
interests.

For example, one senior
Marsh executive sent a
message to colleagues
saying: "We need to
place our business in
2004 with those
[insurance companies]
that have superior
financials, broad
coverage and pay us the
most."

Another executive noted
that the size of contingent
commissions will
determine "who [we] are
steering business to and
who we are steering
business from."

Major insurance
companies -- ACE, AIG,
The Hartford and Munich
American Risk Partners --
are named in the
complaint as participants
in steering and bid
rigging. Other insurance
companies are still under
investigation.

The two executives
pleaded guilty to
participating in the illegal
conduct and are
expected to testify in
future cases.

According to the
complaint, Marsh
collected approximately
$800 million in contingent
commissions in 2003.
Spitzer's civil complaint
seeks an end to the
steering and bid rigging,
disgorgement of improper
payments, restitution and
punitive damages.

The immediate victims of
the illegal practices were
Marsh's customers --
mainly large corporations
seeking property and
casualty coverage, but
also small and mid-size
businesses, municipal
governments, school
districts and some
individuals.

Spitzer thanked the State
Insurance Department for
its cooperation in the joint
investigation, which is
continuing.

The investigation
underlying today's civil
action case was led by
Assistant Attorneys
General Matthew Gaul,
Mel Goldberg, Michael
Berlin, Maria Filipakis and
Peter Bernstein, under
the direction of David D.
Brown IV, Chief of the
Investment Protection
Bureau, Jay Himes, Chief
of the Antitrust Bureau
and Terryl Brown
Clemons, Acting Deputy
Attorney General in
Charge of the Public
Advocacy Division.

Audrey Samers, Deputy
Superintendent and
General Counsel of the
New York State Insurance
Department, has
coordinated that agency's
activities with the Attorney
General's office.

The criminal cases are
being prosecuted by
Assistant Attorneys
General Whitman Knapp,
Michael Roe and Nina
Sass under the direction
of Deputy Chief of the
Criminal Prosecutions
Bureau Kevin Suttlehan
and Chief of the Criminal
Prosecutions Bureau
Janet Cohn, and the
Deputy Attorney General
in Charge of the Criminal
Division, Peter B. Pope.

Attachments:

* Complaint
* Exhibits to Complaint
2010-2011 Santa Cruz Grand
Jury Final Report on vendors
San Diego Education Report
SDER
San Diego
Education Report
SDER
SDER
SDER
San Diego Education Report
SDER
San Diego
Education Report
SDER
SDER
SDER