Judge David S. Cunningham, Case Number: 22SMCV01888, Date: 2024-08-13 Tentative Ruling

Judge: David S. Cunningham, Case: 22SMCV01888, Date: 2024-08-13 Tentative Ruling

Tentative Ruling Re: Motion to Dismiss/Stay Re: Forum Non Conveniens and Arbitration

This case concerns a foreign company named Hybrid Trade Limited (“Hybrid”). Plaintiffs allege that, “[i]n 2018, Defendants offered and sold digital tokens (the ‘Hybrid Token’), raising approximately $50 million from investors based around the world, including within the state of California and Los Angeles County.” (Second Amended Complaint (“SAC”), ¶ 1.) “However,” Plaintiffs assert that “Defendants have yet to satisfy any of their commitments to investors.” (Ibid., emphasis in original.) They claim “Defendants squandered, misappropriated, and purported to lose by theft all or nearly all of the approximately $50 million raised through their offer and sale of Hybrid Tokens.” (Ibid.)

Former Olympian Apolo Ohno is one of the Defendants. He allegedly co-founded Hybrid. (See id. at ¶ 11.) He moves to dismiss/stay Plaintiff Brian Kang’s claims based on forum non conveniens (he contends Malta is the proper forum), and he moves to arbitrate the claims of Plaintiffs Prasad Hurra, David Kim, Artemio Verduzco, David Kwon, and Young Jae Kwon (he contends their claims should be arbitrated in Hong Kong).

“Forum non conveniens is an equitable doctrine invoking the discretionary power of a court to decline to exercise the jurisdiction it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere.” (Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.) “The moving party bears the burden of proving that California is an inconvenient forum.” (Ford Motor Co. v. Insurance Co. of North America (1995) 35 Cal.App.4th 604, 610 (“Ford”).) “There must be evidence – not merely bald assertions – to support the trial court’s determination.” (Ibid.)

“The quantum of evidence needed to satisfy that burden may vary, however, depending on whether plaintiff is or is not a California resident and whether defendant seeks a stay of the action or dismissal.” (Edmon & Karnow, Cal. Practice Guide: Civ. Procedure Before Trial (The Rutter Group June 2024 Update) ¶ 3:408.5.) “Where plaintiff is a California resident . . . , there is a ‘strong presumption’ in favor of plaintiff's choice of forum.” (Id. at ¶ 3:408.6.) By contrast, “[a] nonresident plaintiff's choice of forum is entitled to ‘due deference’ under all circumstances, but not a ‘strong presumption’ of appropriateness.” (Id. at ¶ 3:408.7.)[1]

Courts use a two-step test to analyze forum non conveniens. The first step is to assess whether a suitable alternative forum exists. (See id.) If one does, “the next step is to consider the private interests of the litigants and the interests of the public in retaining the action for trial in California.” (Ibid.)

The first step requires the trial court to “determine whether the alternate forum is a ‘suitable’ place for trial.” (Ford, supra, 35 Cal.App.4th at 610.) This is non-discretionary inquiry. “An alternative forum is ‘suitable’ if it has jurisdiction and an action in that forum will not be barred by the statute of limitations.” (Edmon & Karnow, supra, at ¶ 3:420, emphasis in original.)

Regarding jurisdiction, a leading treatise advises that the moving party must show that all defendants are subject to jurisdiction in the alternative forum, “not just the ‘primary’ defendants[.]” (Id. at ¶ 3:421.1.) The case law is more nuanced. In American Cemwood Corp. v. American Homen Assurance Co. (2001) 87 Cal.App.4^th 431, where only five defendants were named in the case, the Court of Appeal held that the moving party needed to establish jurisdiction as to all defendants. By contrast, in Hansen v. Ownes-Corning Fiberglass Corp. (1996) 51 Cal.App.4^th 753, where there were more than 200 named defendants, the Court of Appeal held the opposite.[2]

For the second step, the trial court must consider private-interest factors and public-interest factors. The private-interest factors include “the ease of access to sources of proof, the cost of obtaining attendance of witnesses, and the availability of compulsory process for attendance of unwilling witnesses.” (Ford, supra, 35 Cal.App.4^th at 610.) The public-interest factors include “avoidance of overburdening local courts . . . , protecting the interests of potential jurors so that they are not called upon to decide cases in which the local community has little concern, and weighing the competing interests of California and the alternate jurisdiction in the litigation.” (Stangvik, supra, 54 Cal.3d at 751.)

Ohno asserts that Jongwook Lee is Kang’s agent and that Lee signed two Token Purchase Agreements to buy Hybrid Tokens for Kang. He contends Kang must litigate in Malta because the forum-selection clauses in the agreements give exclusive jurisdiction to Malta courts and require Maltese law to be applied. (See Motion, pp. 11-13; see also Reply, pp. 3-8.)

The Court disagrees. The Token Purchase Agreements are attached to the declaration of Daniel Tyukody at exhibits 8 and 9. (See Tyukody Decl., Exs. 8, 9.) Tyukody is Ohno’s attorney. He lacks personal knowledge to authenticate the agreements and Lee’s alleged signatures. (See Opposition, pp. 3-4.) He also lacks personal knowledge to state whether Lee purchased Hybrid Tokens on Kang’s behalf as Kang’s agent. (See ibid.) The agreements do not state that Lee purchased the tokens for Kang (see Tyukody Decl., Exs. 8, 9); nor do they state that Kang is the “Ultimate Token Owner” – indeed, Kang is not mentioned (ibid.); and Ohno fails to cite deposition testimony or discovery responses that show an agent-type relationship. (See, e.g., Motion, pp. 8-11.) At best, Ohno presents hypotheses, opinions, and conjecture (see ibid.; see also Reply, pp. 3-8) – he makes fraud and credibility assertions and effectively asks the Court to assume agency – so he fails to meet his burden.

Ohno’s close-relationship, third-party-beneficiary, and equitable-estoppel arguments do not change the result. (See Motion, pp. 12-13; see also Reply, pp. 7-8.) They suffer from the same defects, namely, the inadmissible and inadequate evidence.

Moreover, the first step is unsatisfied. Ohno fails to demonstrate that he and the other Defendants are subject to jurisdiction in Malta, and his statute-of-limitations discussion is conclusory. (See Motion, pp. 15-16; see also Reply, pp. 8-9; SAC, ¶¶ 11-13 [alleging that Ohno is an American citizen and resides in Los Angeles, Rod Jao resides in Vancouver, Canada, and Eugenio Pugliese is an American citizen].) On this record, he fails to show that Malta qualifies as a suitable forum.

“[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4^th 394, 413.)

“Under ‘both federal and state law, the threshold question . . . is whether there is an agreement to arbitrate.’” (Cruise v. Kroger Co. (2015) 233 Cal.App.4^th 390, 396, emphasis in original.)

The burden of proof rests with the petitioner. (See Rosenthal, supra, 14 Cal.4^th at 413 [requiring the petitioner to prove the existence of the agreement “by a preponderance of the evidence”].) To meet the burden, “the provisions of the written agreement and the paragraph that provides for arbitration . . . must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4^th 215, 218 [same].)

“Competent evidence is required to establish both the existence of the arbitration agreement and any ground for denial.” (Knight, et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group December 2023 Update) ¶ 5:321.) “The verified petition (and attached copy of the agreement) normally proves the existence of the arbitration agreement. Affidavits or declarations may be necessary when factual issues are tendered.” (Ibid.)

Ohno contends Hurra, Kim, Verduzco, Kwon, and Kwon must arbitrate in Hong Kong because their contract claims arise from the White Papers. The White Papers are prospectuses that Hurra, Kim, Verduzco, Kwon, and Kwon allegedly reviewed prior to purchasing Hybrid Tokens. Ohno claims the White Papers contain binding arbitration provisions. (See Motion, pp. 18-20; see also Reply, pp. 10-11.)

Plaintiffs disagree. They contend there were three versions of the White Papers during the purchasing period, and only one of the versions had an arbitration clause. They claim Verduzco is the sole Plaintiff who made a purchase when the version with an arbitration clause was operative, but they assert that Verduzco did not rely on it and that Defendants replaced it with a new version two days after the purchase. They contend the motion should be denied as to all Plaintiffs because:

* the arbitration clause constitutes an unenforceable browsewrap or clickwrap agreement. (See Opposition, pp. 5-7; see also Chavez Decl., Exs. A-C.)

According to Plaintiffs, “the White Papers were located somewhere on a now-defunct webpage that used to be hosted at www.hybridblock.io.” (Opposition, pp. 6-7.) “Most courts now have identified at least four types of internet contract formation, most easily defined by the way in which the user purportedly gives their assent to be bound by the associated terms: browsewraps, clickwraps, scrollwraps, and sign-in wraps.” (Sellers v. JustAnswer LLC (2021) 73 Cal.App.5^th 444, 463.)

“A ‘browsewrap’ agreement is one in which an internet user accepts a website's terms of use merely by browsing the site.” (Ibid., emphasis in original.) “A ‘clickwrap’ agreement is one in which an internet user accepts a website’s terms of use by clicking an ‘I agree’ or ‘I accept’ button, with a link to the agreement readily available.” (Ibid., emphasis in original.) “A ‘scrollwrap’ agreement is like a ‘clickwrap,’ but the user is presented with the entire agreement and must physically scroll to the bottom of it to find the ‘I agree’ or ‘I accept’ button[.]” (Id. at 463-464, emphasis in original.) “‘Sign-in-wrap’ agreements are those in which a user signs up to use an internet product or service, and the sign-up screen states that acceptance of a separate agreement is required before the user can access the service.” (Id. at 464, emphasis in original.) “While a link to the separate agreement is provided, users are not required to indicate that they have read the agreement’s terms before signing up.” (Ibid.) “Instead, ‘the website is designed so that a user is notified of the existence and applicability of the site’s “terms of use” [usually by a textual notice] when proceeding through the website's sign-in or login process.” (Ibid.)

California and “federal courts have reached consistent conclusions when evaluating the enforceability of agreements at either end of the spectrum, generally finding scrollwrap and clickwrap agreements to be enforceable and browsewrap agreements to be unenforceable.” (Sellers, supra, 73 Cal.App.5^th at 466; see also Weeks v. Interactive Life Forms, LLC (2024) 100 Cal.App.5^th 1077 [analyzing a browsewrap agreement].) In Sellers, the Court of Appeal additionally found sign-in-wrap agreements unenforceable. (See Sellers, supra, 73 Cal.App.5^th at 453.)

In view of these rules, the Court finds that the motion should be denied without prejudice. The moving papers include two White Papers. (See Tyukody Decl., Exs. 1, 2.) Neither is authenticated, and only the first one has an arbitration clause. (See id. at Ex. 1.) Plaintiffs’ counsel filed a third White Paper, which also is unauthenticated and lacks an arbitration provision. (See Chavez Decl., Ex. A.) There is no signed arbitration agreement by any Plaintiff (see Motion, p. 18); Ohno fails to link each Plaintiff to a particular White Paper, let alone the one with the arbitration section; and he submitted zero evidence about the website where the White Papers purportedly appeared. On the current record, it cannot be determined whether the website used browsewrap features or clickwrap features (the evidence is insufficient to allow the Court to make the kinds of determinations that the Sellers and Weeks courts made). Ohno’s burden of proof is unmet for each of these reasons.[4]

[1] “Several cases have stated that the motion must be denied unless defendant establishes that California is a ‘seriously inconvenient’ forum.” (Id. at ¶ 3:408.8.) But, “where plaintiff is a nonresident, it is error for the trial court to impose the ‘seriously inconvenient’ burden on defendant.” (Ibid.) “To the extent this standard is appropriate . . . , it applies only when defendant seeks dismissal of the action on forum non conveniens grounds. It does not apply when defendant seeks a stay of the action.” (Ibid., emphasis in original.)

[2] Here, there are only six Defendants, so the Court intends to follow the American Cemwood rule.

[3] Given the preceding analysis, the Court does not need to reach the private-interest and public-interest factors.

[4] Ohno states that, if nothing else, the Court should compel Verduzco’s claims to arbitration since he bought Hybrid Tokens while the White Paper with the arbitration clause was in force. (See Reply, p. 11.)

The Court disagrees. Again, the White Paper is unauthenticated, and Ohno fails to show that Verduzco accessed it. Even assuming he accessed it, the record is inconclusive about whether the website utilized browsewrap features or clickwrap features, which is significant to the question of enforceability.