Judge: Armen Tamzarian, Case: 23STCV00023, Date: 2023-06-22 Tentative Ruling
Case Number: 23STCV00023 Hearing Date: June 22, 2023 Dept: 52
Tentative Ruling
Defendants Iain Bratt, Jim Lupkin,
and Shemori Boshae Guinn’s Motion to Dismiss Based on Exclusive Forum Selection
Provision
Defendants Iain Bratt, Jim Lupkin,
and Shemori Boshae Guinn move to dismiss this action by plaintiff Toga Limited,
a Nevada Corporation, based on a contractual forum selection clause.
“[A] mandatory forum selection clause
… will usually be given effect unless it is unfair or unreasonable. [Citation.]
Moreover, a court will normally reject any claims that the chosen forum
is unfair or inconvenient.” (Richtek
USA, Inc. v. uPI Semiconductor Corp. (2015) 242 Cal.App.4th 651, 661.) “A forum selection clause is valid in the
absence of the resisting party meeting a heavy burden of proving enforcement of
the clause would be unreasonable under the circumstances of the case.” (Bancomer, S. A. v. Superior Court (1996)
44 Cal.App.4th 1450, 1457 (Bancomer).)
This motion
involves two forum selection clauses. Defendants
move to enforce the following provision of their “independent director
agreements” (IDAs) with plaintiff: “All actions and proceedings arising out of
or relating to this Agreement shall be heard and determined in any court in
Clark County, Nevada.” (Joint Decl., Ex.
B, § 12.)
Plaintiff,
meanwhile, relies on the forum selection clause in Toga Limited’s amended and
restated bylaws: “To the fullest extent permitted by law, and unless the
Corporation consents in writing to the selection of an alternative forum, the
courts in the county of Los Angeles, California, or the Eighth Judicial
District Court of Clark County, Nevada, shall be the sole and exclusive forum
for any actions, suits or proceedings, whether civil, administrative or
investigative (a) brought in the name or right of the Corporation or on its
behalf, (b) asserting a claim for breach of any fiduciary duty owed by any
director, officer, employee or agent of the Corporation to the Corporation or
the Stockholders.” (Khojayan Decl., Ex.
1, § 11.1.)
Plaintiff
argues the latter provision applies because this complaint alleges defendants
breached their fiduciary duties as directors of the corporation. Defendant argues the IDAs’ forum selection
clause applies because, regardless of how plaintiff labeled its claims, the
complaint arises from the IDAs because it relates to the IDAs’ compensation
provisions.
The IDAs’ forum selection clause
applies for two reasons.
1. This Dispute Requires Interpreting
the IDAs
The IDAs’ forum selection clause
applies because resolving plaintiff’s complaint requires interpreting the
IDAs. “ ‘[F]orum selection clauses can be
equally applicable to contractual and tort causes of action. [Citations.]
Whether a forum selection clause applies to tort claims depends on
whether resolution of the claims relates to interpretation of the contract.’
” (Bancomer, supra, 44 Cal.App.4th
at p. 1461.)
The IDAs govern the directors’
compensation, including stock compensation.
In addition to regular pay, each “Director is also entitled to receive
from the Company” quarterly compensation of “such number of shares of the
Company’s common stock that have a market value of $1,500.” (Joint Decl., Ex. B, § 3(b).) The IDAs further provide, “The Board (or its
designated Committee) may from time to time authorize such other compensation
and benefits for the Director, in addition to the compensation set forth
above.” (Id., § 3(c).)
Plaintiff’s complaint alleges
defendants improperly issued stock to themselves. The complaint alleges two causes of action
for breach of fiduciary duty, a third cause of action for unjust enrichment,
and a fourth cause of action for declaratory relief. Its factual allegations discuss the history
of the company and its directors. (¶¶
9-15.) The complaint alleges defendants
engaged in self dealing, including “repeatedly approving compensation to
themselves” and “eventually looting company’s shares and awarding themselves
stocks in compensation amount to over 18% of the company’s outstanding stock a
day before resigning their positions.”
(¶ 16.) The complaint also makes
general allegations that “[s]ince being appointed as independent directors
Defendants Bratt, Lupkin and Guinn engaged in substantial self-dealing
transactions.” (¶ 17.)
The remaining factual allegations concern
defendants’ “intent to engage in substantial self-dealing transactions” (¶ 18),
which culminated in a “scheme” to exclude majority shareholder Michael Toh (¶
19) from a “special meeting of the board … on July 6, 2022” (¶ 20). At the meeting, defendants allegedly each
issued themselves 5,521,978 shares of stock.
(¶ 21.) The complaint further
alleges, “Defendants’ issuance of stock was done in bad faith and constituted intentional
misconduct by Defendants, in violation of their fiduciary duties as directors
of Toga.” (¶ 24.)
The complaint’s allegations for each
cause of action similarly arise from issuing this stock. The first cause of action alleges, “By
issuing large quantities of stock to themselves at a greatly discounted value,
Defendants acted in self interest and breached their duty of loyalty.” (¶ 27.)
The second cause of action alleges, “Defendants breached that fiduciary
duty by engaging in self-dealing transactions without seeking approval of
disinterested directors of Toga, by issuing large amount of stock to themselves
for nominal and discounted value.” (¶
33.) The third cause of action alleges,
“By issuing themselves stock as additional compensation for services not
performed, Defendants were unjustly enriched, as the stock-based compensation
was not provided in exchange for any specific duties or employment of
Defendants.” (¶ 38.) Finally, the fourth cause of action seeks “a determination of the
validity of any stock compensation issued to Defendants” (¶ 41) and “a
declaration requiring Defendants to return and cancel the stock compensation
that they received” (¶ 42).
The prayer also includes substantial
relief regarding the disputed stock. Among
other relief, the complaint prays “[f]or rescission of any stocks issued to
Defendants and return of said shares to Plaintiff.” (Comp., prayer ¶ 1.)
Resolving these claims requires
interpreting the IDAs’ provisions regarding stock compensation and other
compensation and benefits. Defendants
may be able to prove they did not breach any fiduciary duty or unjustly enrich
themselves if the stock was issued in compliance with section 3(b) of the IDAs. The stock compensation clause provides when
the directors were entitled to stock and how much stock they would get. Each is “entitled to receive from the Company
at the end of each fiscal quarter at which time the Director is still a member
of the Board, such number of shares of the Company’s common stock that have a
market value of $1,500, determined by using the average closing bid price of
the Company’s common stock during each trading day of the last thirty (30) day
period immediately preceding the end of the applicable fiscal quarter.” (IDA, § 3(b).) The complaint, meanwhile, alleges defendants
issued the “stock to themselves at a greatly discounted value.” (¶ 27.)
Determining if the stock was issued at a greatly discounted value
requires applying this provision of the IDAs.
Defendants also rely on the IDAs’
provision for “other compensation and benefits.” (IDA, § 3(c).) They may be able to prove they did not breach
any fiduciary duty or unjustly enrich themselves because the stock was valid
“other compensation” under that section.
Resolving plaintiff’s claims requires interpreting and applying the
IDAs. The IDAs’ forum selection clause
therefore applies.
2. The Corporation’s Written Consent
The IDAs’ forum selection clause also
applies because it constitutes plaintiff’s written consent to exclusive
jurisdiction in Clark County, Nevada.
Plaintiff relies on its “amended and restated bylaws.” (Khojayan Decl., Ex. 1.) The bylaws’ forum selection clause begins, “To
the fullest extent permitted by law, and unless the Corporation consents in
writing to the selection of an alternative forum, the courts in the county of
Los Angeles, California, or the Eighth Judicial District Court of Clark County,
Nevada, shall be the sole and exclusive forum for any actions... .” (Id.,
§ 11.1.) The corporation consented to
the IDAs. It did so in writing. And the IDAs provide for exclusive
jurisdiction in Clark County, Nevada, and not Los Angeles County.
Moreover, plaintiff
entered the IDAs after the bylaws took effect.
Parties can modify their contractual obligations “by a subsequent mutual
agreement of the parties.” (Secrest
v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544,
553.) Generally, a “later contract
supersedes the former contract as to inconsistent provisions.” (N. L. R. B. v. International Union of
Operating Engineers Local No. 12, AFL-CIO (9th Cir. 1963) 323 F.2d 545, 548.) The amended and restated bylaws took effect
on July 14, 2020. (Khojayan Decl., Ex.
1, form 8-K, item 5.03 & bylaws § 2.6.)
Defendants executed their IDAs with the company on November 1,
2020. (Joint Decl., ¶ 13, Ex. B.) In doing so, the parties modified their
obligations. Due to their subsequent
agreement, the parties must litigate this action in Clark County, Nevada.
Disposition
Defendants Iain Bratt, Jim Lupkin,
and Shemori Boshae Guinn’s motion to dismiss complaint based on exclusive forum
selection provision is granted.
The court hereby dismisses plaintiff Toga Limited’s complaint.