Judge Gail Killefer, Case 21STCV41429 2022-08-26 Tentative Ruling

Judge: Gail Killefer, Case: 21STCV41429, Date: 2022-08-26 Tentative Ruling

Case Number: 21STCV41429 Hearing Date: August 26, 2022 Dept: 37

HEARING DATE: August 26, 2022

CASE NUMBER: 21STCV41429

CASE NAME: Andrew Kang v. Worth Network, Inc., et al.

MOVING PARTIES: Defendants, Worth Network, Inc., Patrick Kim

OPPOSING PARTY: Plaintiff, Andrew Kang

TRIAL DATE: None

PROOF OF SERVICE: OK

MOTION: Defendants’ Motion to Compel Arbitration

OPPOSITION: August 15, 2022

REPLY: None as of August 24, 2022

TENTATIVE: Defendants’ Motion to Compel Arbitration is denied. Plaintiff is to give notice.

Background

This is an action arising out of agreements between Andrew Kang (“Plaintiff”) and Defendant Patrick Kim (“Kim”) to join efforts in the digital advertising and social media space. Plaintiff alleges that on October 15, 2018, Plaintiff and Kim joined to create Worth.io, LLC (“Worth.io”) in furtherance of those efforts. Plaintiff further alleges that while working to grow Worth.io, Kim founded a competing company, Defendant Worth Network, Inc. (Kim and Worth Network, Inc. collectively referred to as “Defendants.”)

Plaintiff’s Complaint alleges mismanagement by Kim, namely that Kim utilized Plaintiff’s efforts for the benefit of Defendants, directed funds to Worth Network, Inc. away from Worth.io, and has maintained a competing enterprise which has usurped potential opportunities from Worth.io.

On November 9, 2021, Plaintiff filed his Complaint against Defendants. Plaintiff’s Complaint alleged causes of action as follows: (1) breach of fiduciary duty; (2) unfair competition; (4)

promissory fraud; and (4) declaratory relief.

On May 20, 2022, Defendants filed their Motion to Compel Arbitration.

Defendants’ petition now comes on for hearing. Plaintiff opposes the motion.

Discussion

I. Legal Standard

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, Code of Civil Procedure, section 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.” (CCP § 1281.2; Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967.) Similarly, public policy under federal law favors arbitration and the fundamental principle that arbitration is a matter of contract and that courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

Because the obligation to arbitrate arises from contract, the court may compel arbitration only if the dispute in question is one which the parties have agreed to arbitrate. Since arbitration is a favored method of dispute resolution, arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. However, there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate. In determining whether an arbitration agreement applies to a specific dispute, the court must determine whether a valid agreement to arbitrate exists. The court should attempt to give effect to the parties’ intentions as set forth in the agreement in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made. (Civ. Code, §§ 1636, 1644, 1647; Weeks v. Crow (1980) 113 Cal.App.3d 350, 352-353.)

If the party opposing the petition raises a defense to enforcement, that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense. The facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion. The trial court’s role is to resolve these factual issues, not merely to determine whether evidence opposing the petition has sufficient substantiality. (Rosenthal v. Great Western Financial Sec. Corp. (1996) 14 Cal.4th 394, 413-414.)

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 opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 [“The petitioner ... bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”].)

II. Existence of an Arbitration Agreement

A motion to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration or must have a copy of them attached. (Cal. Rules of Court, rule 3.1330.)

A party may demonstrate express acceptance of the arbitration agreement in order to be bound (e.g., Mago v. Shearson Lehman Hutton Inc. (9th Cir. 1992) 956 F.2d 932 [agreement to arbitrate included in job application]; Nghiem v. NEC Electronic, Inc. (9th Cir. 1994) 25 F.3d 1437 [agreement to arbitrate included in handbook executed by employee]; Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal. App. 4th 1105 [employer may terminate employee who refuses to sign agreement to arbitrate]) or implied-in-fact in fact acceptance (Asmus v. Pacific Bell (2000) 23 Cal. 4th 1, 11 [implied acceptance of changed rules regarding job security]; DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal. App. 4th 629, 635 [implied acceptance of changed compensation rules]). (Craig v. Brown & Root (2000) 84 Cal.App.4th 416, 420.)

“A signed agreement is not necessary, however, and a party’s acceptance [of an agreement to arbitrate] may be implied in fact….” (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 23 (Pinnacle), cited in Pet. Mem. 6.) “An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Ibid.)

Defendant Worth Network, Inc. was founded as a corporation in Delaware by Kim. (Kim Decl. ¶4.) The parties do not dispute that Plaintiff and Kim signed an Independent Contractor Agreement between Plaintiff and Worth Network on September 4, 2019. (“IC Agreement”) (Kim Decl. ¶6.)

Here, the parties do not dispute the arbitration provision of the IC Agreement. The IC Agreement signed between the parties as part of Plaintiff’s efforts to work as an independent contractor with Defendants in September 2021. The IC Agreement Arbitration provision provides in pertinent part as follows:

15. Arbitration Any claim or controversy arising out of or relating to this Agreement shall be settled by binding arbitration in Orange County, California in accordance with JAMS Rules, and judgment on the award rendered by the arbitrator shall be final and binding and may be entered in any court having jurisdiction. There shall be one (1) arbitrator who shall be California attorney experienced in labor and employment laws. The fees of the arbitrator and all other costs that are unique to arbitration shall be equally shared by the Company and Contractor. Each party shall be solely responsible for paying its own further costs and expenses for the arbitration, including, without limitation, its own attorneys’ fees and/or its witnesses’ fees. The arbitrator shall have the power to order discovery reasonably necessary to enable the parties to participate effectively in the evidentiary hearing.

(Kim Decl. Exh. 1, Art. 15.)

Therefore, the court finds a valid arbitration agreement to be in place.

Here, Defendants argues that the dispute at issue here falls under the Arbitration Provision and includes the allegations between Plaintiff and Kim. (Motion, 5-10.) Defendants contend that the “only compensatory relationship between Worth and Kang is an independent contractor agreement on September 4, 2019, wherein Plaintiff Andrew Kang contracted with Worth Network, Inc.” (Motion, 5.)

The court notes that this statement is not accurate in its entirety as Exhibit A to Plaintiff’s Complaint, and specifically Article 4.8, references “Guaranteed Payments” to both Plaintiff and Kim of $100,000.00 commencing on January 1, 2018, and on each fiscal year. (Complaint, Exhibit A, Art. 4.8.) Defendants further point out that Worth.io has never been registered as a California limited liability company, and “the Secretary of State has no record of it ever existing.” (Motion, 6; Ryan Decl. Exh. B.) Defendants further contend the IC Agreement outlined the compensation as discussed by the parties, and outlined the duties of each party after its execution. (Motion, 8-9.)

“Kang’s claims quite obviously “aris[e] out of,” are “in connection with,” and “relat[e]” to the Agreement and a breach thereof. The entire Complaint centers around Kang’s (unfounded) assertion that Kim made a commitment to Kang by signing a draft Operating Agreement for unrelated and never-formed company, Worth.io LLC, and wants to impute those to his agreement with Worth Inc...” (Motion, 9.)

Lastly, Defendants also contend that Worth.io and Plaintiff “should be considered as beneficiaries entitled to enforce the arbitration provision,” in arguing that the equities of the case merit compelling the matter to arbitration (Motion, 10-11.)

In opposition, Plaintiff argues that the IC Agreement cannot be read to encompass alleged acts between the parties prior to the signing of the IC Agreement. (Opp., 2-3.)

“It is clear that the ICA is not intended to encompass any of the issues related to the instant suit, including those related to Defendants’ breach of fiduciary duties, etc. Moreover, the arbitration provision of the ICA states it only covers “[a]ny claim or controversy arising out of or relating to this Agreement” -- not to the Operating Agreement that was entered into previously or acts committed prior to the signing of the ICA.” (Id.)

Further, Plaintiff contends that compelling arbitration and adopting Defendants’ interpretation of the IC Agreement would lead to “an absurd result... Taken to its logical conclusion, Defendants position [sic] is that workers who engage with Worth Network sign away their rights to sue for anything—even wrongful death claims—including claims prior to the agreement.” (Opp, 4.)

Plaintiff further contends that the equities of this case do not favor arbitration, adding:

“Even though Defendants argue that the equities favor arbitration, the Supreme Court has repeatedly held that arbitration provisions are to be put on the ‘same footing’ as ordinary contracts, so that they are ‘as enforceable as other contracts, but not more so.’” (Opp., 4-5; citing Prima Paint Corp. v. Flood & Conklin Manufacturing Co., (1967) 388 U.S. 395, 404, n.12)

This court agrees.

While Defendants contend that the IC Agreement is all-encompassing and covers the entirety of the alleged conduct between Plaintiff and Defendants, Defendants fail to address the temporal issues with their contentions. Namely, Defendants fail to address how the conduct alleged before the IC Agreement was executed would be covered by the IC Agreement, especially when, as here, the alleged conduct regarded another alleged venture between Plaintiff and Kim, Worth.io. While Worth.io’s lack of filing with the California Secretary of State can be useful to show that the parties ultimately did not succeed in their venture, the signed Operating Agreement between Plaintiff and Kim attached as Exhibit A to the Complaint does evince that some conduct between the parties occurred well before the IC Agreement. As such, the IC Agreement cannot be read to encompass such earlier conduct as the four corners of the document do not manifest an intention between the parties to encompass said alleged conduct.

The court finds that a valid arbitration agreement exists between the parties. However, the court also finds that at least some portion of the dispute among the parties does not arise in connection with, or relating to, the IC Agreement executed between them, and finds the Arbitration provision of the IC Agreement to not be controlling.

For these reasons, Defendants’ motion is denied.

Conclusion

Defendants’ Motion to Compel Arbitration is denied. Plaintiff is to give notice.