Judge Elaine W. Mandel, Case Number: 24SMCV02641, Date: 2024-11-01 Tentative Ruling

Judge: Elaine W. Mandel, Case: 24SMCV02641, Date: 2024-11-01 Tentative Ruling

Case Number: 24SMCV02641 Hearing Date: November 1, 2024 Dept: P

Tentative Ruling

Hand v. Hand Made Productions, LLC, Case no. 24SMCV02641

Hearing date November 1, 2024

Defendant Hand Made Productions & Kelly’s Motion to Compel Arbitration

Plaintiff Laura Hand sues defendants Hand Made Productions, LLC and Christopher M. Kelly for failure to pay wages, breach of contract, fraudulent conveyance and accounting arising from plaintiff’s employment with defendants to create a documentary film. Plaintiff controlled 35% of the LLC company and was its managing member. Defendants move to compel arbitration.

California public policy strongly favors arbitration as an efficient alternative to litigation. Code Civ. Proc. §1280 et seq., Madden v. Kaiser Found. Hosps. (1976) 17 Cal.3d 699, 706. The court “shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists.” Code Civ. Proc. §1281.2.

Plaintiff and defendants signed a written agreement outlining the operations of defendant Hand Made Productions which was to govern the parties’ rights and obligations until a more extensive operating agreement could be established; this was never done. Decl. Kelly ex. 1, paras. 2-3.

Defendants seek to enforce the binding arbitration clause within this agreement, which plaintiff signed in July 2019. Decl. Kelly ex. 1, para. 2, 8. The agreement states “the operation agreement shall provide that all disputes will be settled by binding arbitration.” Decl. Hand ex. 1, para. 8; Decl. Kelly ex. 1, para. 8.

Plaintiff asserts the arbitration provision is not a written agreement to arbitrate. Plaintiff argues the parties entered into a written agreement to temporarily govern their operations until a binding operating agreement could be executed. Plaintiff acknowledges the full agreement would have contained an arbitration provision. The written agreement by its own terms was intended to govern as an abbreviation of a contemplated long-form document that would be more detailed but substantively similar. Decl. Hand ex. 1, para. 1.a; Decl. Kelly ex. 1, para. 1.a.

Plaintiff asserts the arbitration provision is not conspicuous, and she did not note the arbitration provision. The written agreement is only four pages long, and parties are responsible for reading and reviewing agreements to which they are signatories. Failing to note a clause does not render that clause inherently unenforceable.

Plaintiff also argues the arbitration provision is unconscionable. Unconscionability includes elements of oppression and surprise. Plaintiff controlled 35% of the limited liability company and was its managing member. Decl. Kelly ex. 1, para. 1.c; compl. para. 6. No evidence of oppression is offered, nor is this a contract of adhesion or a situation of uneven bargaining power.

Plaintiff asserts the arbitration provision does not reference the relevant arbitration rules, so is unconscionable by surprise. The agreement states “this agreement will be governed by, and construed in accordance with, the internal laws of the State of California.” Decl. Hand ex. 1, para. 8; Decl. Kelly ex. 1, para. 8. This is sufficient to give notice of the arbitration rules that would control.

Plaintiff also argues the presence of Hand Made Productions, LLC, a nonparty to the arbitration provision, weighs against arbitration, per Code Civ. Proc. §1281.2(c). Defendants argues Hand Made Productions, LLC was an intended third-party beneficiary of the arbitration provision. An arbitration agreement may be enforced by a third party beneficiary so long as the third party “shows that he is a member of a class of persons for whose benefit it was made.” Ronay Fam. Ltd. P’ship. v. Tweed (2013) 216 Cal. App. 4th 830, 839; Cal. Civ. Code §1559 (a contract made expressly for the benefit of a third party may be enforced by that third-party).

The written agreement was made “in connection with” Hand Made Productions, LLC and specifies the contributions and services to be provided to Hand Made Productions, LLC and governs “all rights and obligations” of the parties in connection with Hand Made Productions, LLC. Decl. Hand ex. 1; Decl. Kelly ex. 1. Hand Made Productions, LLC was an intended third-party beneficiary of the agreement.

Plaintiff next asserts her Labor Code §229 claims can be pursued in court, regardless of a private arbitration provision. Labor Code §229 states: “Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.”

Defendants assert FAA law supersedes Labor Code §229, as Hand Made Productions, LLC engaged in interstate commerce via funding from Procter and Gamble in Cincinnati, Ohio. Decl. Davine para. 5. Defendants assert Hand Made Productions, LLC’s sole output was a documentary available via e-commerce throughout the United States. In a claim for wages against an employer pursuant to the Labor Code, sec. 229 controls unless the claimant engaged in interstate commerce through the scope of their employment. Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687.

Plaintiff is alleged to have managed Hand Made Productions, LLC’s operations. Decl. Kelly ex. 1, para. 1.c; compl. para. 6. Plaintiff is not alleged to have engaged in interstate travel as part of that management. Labor Code §229 controls plaintiff’s wage claims, and those claims can be pursued in court regardless of a binding arbitration provision.

Defendants’ motion to compel arbitration is GRANTED as to plaintiff’s breach of contract, Bus. and Prof. Code §17200 et seq., fraudulent conveyance and accounting causes of action and DENIED as to Labor Code section 229 claims. The court will hear argument as to whether the Labor Code 229 claims should be stayed pending arbitration of the remaining matters.