Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

 

BACKGROUND 

This case arises from a dispute between two shareholders over the sale of a company.  Plaintiff Nile Technology, Inc. is a “venture-backed real estate technology company platform that simplified end to end real estate transactions for sellers, buyers and brokers.”  (Compl. ¶ 15.)  Plaintiff Khaled Yatim is one of the founders and served as the CEO and a director of Nile.  (Id. ¶¶ 1, 16.)  Defendant Tim Singh Dhillon is the CEO, Secretary, and CFO of Defendant 113, Inc., which is an investor in Nile.  (Dhillon Decl. ¶ 1; Compl. ¶ 22.)   

Stock ownership in Nile was (and is) governed by a Shareholder Agreement.  (Dhillon Decl. Ex. A, at 20.)  Mr. Yatim is a shareholder, subject to the Shareholder Agreement. (Dhillon Decl. Ex. D.)  Mr. Dhillon and 113, Inc. are also subject to the Shareholder Agreement.  When 113, Inc. invested in Nile, Mr. Dhillon signed the Nile Shareholder Agreement through a Joinder Agreement.   (Dhillon Decl. Ex. B). The Joinder Agreement provides that “the undersigned hereby agrees that upon the execution of this Joinder Agreement, it shall become a party to the Shareholder Agreement[.]”  (Dhillon Decl. Ex. B.)  Mr. Dhillon also executed the Nile Subscription Agreement for 113, Inc. which provides that: “Subscriber accepts, adopts and agrees that each and every provision of the Shareholder Agreement … is binding on the Subscriber.”  (Dhillon Decl. Ex. C, at § 4.)  

The Shareholder Agreement contains a binding arbitration provision which states: “If controversy shall exist between the parties hereto, their successors or assigns, arising under or out of this Agreement which they cannot resolve among themselves, any party to the controversy shall have the right to submit the same to arbitration . . .”  (Dhillon Decl. Ex. A, § 10.5.)   

The Shareholder Agreement also addresses how shareholders agreed to handle any “Change in Control”– e.g., by merger, consolidation, sale, etc.  (Id. § 8.3.)  A fundamental requirement for any such Change in Control is that “[e]ach Shareholder shall receive the same form and amount of consideration per share.”  (Id. § 8.3(a).) 

The parties’ dispute centers on the Change in Control provision, and particularly whether the contemplated sale of Nile violated that provision.  In or around December 1, 2023, reAlpha emerged as a potential purchaser of Nile. (Compl. ¶ 38.)  At that time, Nile was unable to fundraise enough money to support its operations.  (Compl. ¶¶ 34-39.)  “[F]eedback from venture capital markets was not positive.”  (Id. ¶ 35.)  “By September 2023, Nile’s cash reserves were critically low”. (Id.) Through the end of 2023, Nile obtained no additional funding and “investor interest remained underwhelming, Nile faced renewed cash flow challenges and debt was mounting.” (Id. ¶ 36.)   

Mr. Dhillon expressed strong opposition to reAlpha’s proposal.  (Id. ¶ 49.)  Mr. Dhillon believed the proposal from reAlpha undervalued the Company and was skewed in favor of Yatim at the expense of the other shareholders.  Under the deal, Mr. Yatim would receive over $21 million, while the other shareholders would only get $245,700; Mr. Yatim would get 86x greater than the combined value for all other shareholders of the Company (who own 65% of Nile while Mr. Yatim owns 35%.)   

Plaintiffs contend that “[b]ased upon Dhillon’s conduct, on or about February 7, 2024, reAlpha terminated its offer to purchase NILE.  reAlpha informed Yatim that it was pulling its offer to purchase NILE due to the conduct of Dhillon, including the threat of litigation if the transaction was consummated.” (Compl. ¶ 64.)  This lawsuit ensued.  The operative complaint alleges three claims for (1) breach of fiduciary duty, (2) interference with prospective economic advantage, and (3) negligent interference with prospective economic advantage.   

This hearing is on Defendants’ motion to compel arbitration.  Defendants argue Plaintiffs signed an arbitration agreement, agreeing to submit to final and binding arbitration all disputes “arising under or out of” the Shareholder Agreement.  Defendants further contend that the claims here “aris[e] under or out of” the Shareholder Agreement because none of Plaintiffs’ claims would exist had the parties not entered into the Shareholder Agreement and had Mr. Yatim not sought a deal with reAlpha that allegedly violated the Change in Control provision in the Shareholder Agreement.  There was no opposition filed as of the posting of this tentative ruling.   

LEGAL STANDARD 

 

California¿law¿reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes.  (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street¿(1983) 35 Cal.3d 312, 323.)  “[D]oubts concerning the scope of arbitrable issues are to be resolved in favor of arbitration. Therefore, in the absence of indication of contrary intent, and where the arbitration clause is reasonably susceptible of such an interpretation, claims … will be deemed subject to arbitration.” (Id., fn. omitted.) 

To further the policy favoring arbitration,¿Code Civ. Proc., § 1281.2¿requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies.  Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues. (Code of Civ. Proc., § 1281.2;¿Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967.)  

In deciding a motion or petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties and then determine whether the claims are covered within the scope of the agreement.¿(Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)   

The moving party bears the burden of proving the existence of a valid arbitration agreement, and the opposing party has the burden to establish any defense to enforcement.  (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579.) 

If the court orders arbitration, then the court shall stay the action until arbitration is completed.  (See Code Civ. Proc., § 1281.4.) 

DISCUSSION 

Existence of Arbitration Agreement 

In ruling on a motion to compel arbitration, the Court must first determine whether the parties actually agreed to arbitrate the dispute. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541; Victoria v. Superior Court (1985) 40 Cal. 3d 734, 835.)  Although “[t]he law favors contracts for arbitration of disputes between parties” (Player v. Geo. M. Brewster & Son, Inc. (1971) 18 Cal.App.3d 526, 534), “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate[.]” (Weeks v. Crow (1980) 113 Cal. App. 3d 350, 353..)¿  

“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 648 (citations and internal quotations omitted); see also Sparks v. Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th 1511, 1518¿(“Because arbitration is a contractual matter, a party that has not agreed to arbitrate a controversy cannot be compelled to do so.”).)¿¿¿¿¿¿¿  

Here, Defendants argue Plaintiffs signed an arbitration agreement, agreeing to submit to final and binding arbitration all disputes arising under or out of the Shareholder Agreement.  The Court agrees.  The Shareholder Agreement contains a binding arbitration provision which states: “If controversy shall exist between the parties hereto, their successors or assigns, arising under or out of this Agreement which they cannot resolve among themselves, any party to the controversy shall have the right to submit the same to arbitration . . .”  (Dhillon Decl. Ex. A, § 10.5.) Accordingly, Defendants have met their burden to establish the existence of an arbitration agreement.     

 

Scope of Arbitration Agreement 

Defendants argue that the arbitration provision here covers the claims alleged by Plaintiff.  The Court agrees. 

In determining whether an arbitration provision applies to a certain controversy, courts first identify the controversy and then decide whether that controversy is within the scope of the arbitration clause.  (In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1106; accord Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684-85.)  To identify the controversy, the court examines “the specific acts of alleged wrongdoing and not just the form of the claim.”  (Drell v. Cohen (2014) 232 Cal.App.4th 24, 29-30; Bigler v. Harker School (2013) 213 Cal.App.4th 727, 739, 741 (inquiry focuses on an examination of the conduct and the circumstances alleged, not merely the label of the cause of action; it is the dispute, not the named cause of action, that is the focus).)  

Here, Plaintiffs assert three causes of action, all of which arise from Mr. Dhillon’s opposition to the proposed sale of Nile to reAlpha because it would violate the Change in Control provision in the shareholder agreement.  Mr. Yatim would receive 86x the benefit received by the other shareholders, an outcome that Plaintiffs claim is impermissible under the Shareholder Agreement, which requires that, in the event of a Change in Control (as defined therein), “[e]ach Shareholder shall receive the same form and amount of consideration per share.”  (Dhillon Decl. Ex. A § 8.3(a).)  Thus, the underlying controversy fundamentally “aris[es] under or out of” the Shareholder Agreement and is subject to the arbitration provision. Indeed, none of these claims would exist had the parties not entered into the Shareholder Agreement and had Mr. Yatim not sought a deal with reAlpha that allegedly violated the Change in Control provision in the Shareholder Agreement.   

Courts considering similar claims and arbitration provisions have found such claims arbitrable.  For example, EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311 considered arbitration of tort claims (including claims for breach of fiduciary duty and interference with contract) concerning an investment relationship under a contract requiring arbitration of “[a]ny dispute or other disagreement arising from or out of this Consulting Agreement.”  (Id. at 1317.)  The trial court denied the motion to compel, but the Court of Appeal reversed, concluding that plaintiff’s claims reasonably could be characterized as “arising from or out of” the contract because the contract “established and governed plaintiff’s relationship with [defendant].” (Id. at 1325.) The court explained: “In this case, plaintiff alleges defendants defrauded it out of its investment in RAP Technologies and any financial return on its moneys invested in the Loan Vibe software program. Plaintiff further asserts defendants harmed RAP Technologies by diverting the Loan Vibe software program to their own use for their own financial gain.... None of defendants is a named party to the strategic relationship agreement. But the strategic relationship agreement is the basis for plaintiff’s contractual obligations to RAP Technologies and, by extension, to defendants.... If plaintiff and RAP Technologies had never entered into the strategic relationship agreement, the present disputes would never have arisen. . . . Therefore, the arbitration agreement extends to the disputes alleged in plaintiff’s second amended complaint.”  (Id. at 1325–26.)  

So it is here.  Each of Plaintiffs claims “aris[es] under or out of” an investment agreement containing an arbitration provision and concern a dispute related to the parties’ rights and obligations under that agreement.  If the parties had not entered into the Shareholder Agreement, the present disputes would never have arisen.    

In sum, because there is an agreement to arbitrate that covers the claims alleged by Plaintiffs, the Court compels arbitration of these claims.   

CONCLUSION 

Based on the foregoing, the Court GRANTS Defendants’ motion to compel arbitration and stays the action pending the completion of arbitration proceedings.   

 

IT IS SO ORDERED. 

 

DATED: December 18, 2024 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court