Judge: Gary I. Micon, Case: 23CHCV00946, Date: 2024-03-13 Tentative Ruling

Case Number: 23CHCV00946    Hearing Date: March 13, 2024    Dept: F43

Dept. F43

Date: 3-13-24

Case # 23CHCV00946, Jay Cook-Wong, et al. vs. Bradley Spencer, et al.

Trial Date: N/A

PETITION TO COMPEL ARBITRATION

MOVING PARTY: Cross-Defendants Jay Cook-Wong, Danny Cook-Wong, and All Love Surrogacy, LLC

RESPONDING PARTY: Cross-Complainant Same Love Surrogacy, LLC

RELIEF REQUESTED

Cross-Defendants are requesting that the Court compel the case to arbitration and stay the action

RULING: Petition granted

SUMMARY OF ACTION

On April 3, 2023, Cross-Defendants Jay Cook-Wong and Danny Cook-Wong (the Cook-Wongs), along with another plaintiff, filed their complaint against Cross-Complainant Same Love Surrogacy, LLC, and Defendant Bradley Spencer. In their First Amended Complaint, filed on April 10, 2023, they alleged causes of action for sexual battery, assault, sexual harassment, workplace harassment, intentional infliction of emotional distress, retaliation, conversion, trespass, invasion of privacy, and non-payment of wages. The Cook-Wongs were shareholders in Same Love Surrogacy.

After the Cook-Wongs filed their complaint, Bradley Spencer and Same Love Surrogacy (SLS) filed a motion to compel arbitration on May 18, 2023. They filed the motion based on the Limited Liability Company Agreement of SLS. The Court denied this motion on August 14, 2023. The Court found that only three of the plaintiffs’ causes of action were arbitrable based on SLS’s LLC Agreement and did not think it prudent to arbitrate the causes of action in a piecemeal manner because of the risk of conflicting rulings.

On August 29, 2023, SLS filed a cross-complaint against the Cook-Wongs and their new LLC, All Love Surrogacy, LLL (All Love), in which SLS alleges that Cross-Defendants misappropriated confidential and proprietary materials from SLS in order to start a competing business. SLS alleged nine causes of against them: violation of California Comprehensive Computer Data Access and Fraud Act, Violation of Penal Code Section 496, Misappropriation of Trade Secrets, Breach of Duty of Loyalty, Violation of Bus. & Prof. Code Section 17200 et seq., Conversion, Intentional Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, and Breach of Contract. SLS’s causes of action are based on the Cook-Wongs’ business relationship with SLS and SLS’s LLC Agreement.

On October 20, 2023, the Cook-Wongs and All Love (collectively Cross-Defendants) filed their own motion to compel arbitration based on SLS’s claims in its cross-complaint. Cross-Defendants argue that SLS’s claims would fall under the arbitration agreement in the LLC Operating Agreement. They argue that SLS has previously acknowledged that this arbitration agreement is enforceable by virtue of its own attempt to use the arbitration agreement to arbitrate the Cook-Wongs’ claims against SLS. They also argue that the allegations against All Love rely upon and are wholly intertwined with the terms of the SLS Operating Agreement.

Cross-Defendants also point out in their petition that there is an arbitration in a separate case, In Re Cook-Wong v. Spencer, JAMS Ref. No. 5220003305, in which the Cook-Wongs’ arbitration demand is proceeding irrespective of and separately from this lawsuit. That arbitration deals with the Cook-Wongs’ and Spencer’s rights as related to the Operating Agreement. The arbitrator in that case denied a claim for jurisdiction over this case.

SLS argues in opposition that the Cook-Wongs are judicially estopped from seeking to force SLS to arbitrate its cross-claims because the Cook-Wongs previously opposed SLS’s attempt to force arbitration of the Cook-Wong’s claims. SLS also argues that its claims do no arise out of or relate to the Operating Agreement because it argues that its cross-claims do not seek to enforce any provision of the Operating Agreement. SLS further argues that because All Love was a nonsignatory to the Operating Agreement, SLS’s claims against All Love are precluded from arbitration.

Cross-Defendants argue in their reply that there is no judicial estoppel because the Cook-Wongs have not taken inconsistent positions. They also argue that SLS’s claims rely entirely on the Operating Agreement because the Cook-Wongs were not employees of SLS, a position that SLS has previously held. Finally, Cross-Defendants argue that SLS is equitably estopped from refusing to arbitrate because of SLS’s reliance on the Operating Agreement in order to make claims against All Love.

ANALYSIS

Request for Judicial Notice: Cross-Defendants request that the Court take judicial notice of one arbitration ruling and two court records. The Court takes judicial notice of these documents.

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, the party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by CCP § 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.   

CCP § 1281.2 states that: 

“The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: 

(a) The right to compel arbitration has been waived by the petitioner; or  

(b) Grounds exist for the revocation of the agreement.  

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” (CCP § 1281.2.)

The arbitration provision in the Operating Agreement executed by the parties in October 2014 provides at Section 13.3:

“In the event of any dispute, claim or controversy between or among the parties arising out of or relating to this Agreement or the Certificate of Formation, whether in contract, tort, equity or otherwise, and whether relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement or the Certificate of Formation, including the determination of the scope or applicability of this agreement to arbitrate, such dispute, claim or controversy shall be resolved by and through an arbitration . . .”

(Nashon Decl., Ex. F, Ex. 1.)

A court interprets an arbitration clause like any other contract, including determination of the intent of the parties and ambiguities. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772.) “A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, § 1636.) “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” (Civ. Code, § 1638.)

Vaughn v. Tesla, Inc. (2023) 87 Cal.App.5th 208 is instructive in interpreting broad arbitration agreements. That case reads in relevant part:

“It is well established…that when courts say that an arbitration agreement including “relating to” is broad, it typically is because it expands the reach of the agreement to encompass claims rooted in the employment relationship, even if the claims do not actually arise from the employment contract itself. As explained in Rice v. Downs (2016) 248 Cal.App.4th 175, 186, 203 Cal.Rptr.3d 555, “‘It has long been the rule in California that a broadly worded arbitration clause ... may extend to tort claims that may arise under or from the contractual relationship. “There is no requirement that the cause of action arising out of a contractual dispute must be itself contractual. At most, the requirement is that the dispute must arise out of contract.”’” (Citation.)

Consistent with the proposition that “relating to” acquires meaning from the subjects being related, the phrase normally encompasses extracontractual claims only “so long as they have their roots in the relationship between the parties which was created by the contract.” (Citations.)”

(Vaughn, supra, at 220-221.)

Here, the language of the agreement states that it applies to any dispute between the parties arising out of or relating to the Operating Agreement. As discussed in Vaughn, “relating to” would include claims that have their roots in the relationship between the parties that was created by the contract. SLS’s claims against Cross-Defendants have their roots in the relationship that was created by the Operated Agreement.

In this case, the parties do not dispute that there is an arbitration agreement. They also do not dispute its enforceability or its conscionability. Instead, their dispute is based on whether the arbitration agreement applies to SLS’s cross-claims, whether Cross-Defendants may compel arbitration after previously opposing it, and whether All Love may invoke the arbitration agreement as a nonsignatory.

Examining the Confidentiality Clause in the Operating Agreement will indicate whether SLS’s cross-claims are based on the Operating Agreement. Article VIII, Section 8.6 of the Operating Agreement reads as follows:

“Confidentiality. All books, records, financial statements, tax returns, budgets, business plans and projections of the Company, all other information concerning the business, affairs and properties of the Company and all of the terms and provisions of this Agreement shall be held in confidence by each Member and its respective Affiliates, subject to any obligation to comply with (a) any applicable law, (b) any rule or regulation of any legal authority or securities exchange or (c) any subpoena or other legal process to make information available to the Persons entitled thereto. Such confidentiality shall be maintained to the same degree as each Member maintains its own confidential information (but in no event to a lesser degree than a reasonable Person would maintain its confidential information) and shall be maintained until such time, if any, as any such confidential information either is, or becomes, published or a matter of public knowledge.”

(Nashon Decl., Ex. F, Ex. 1.)

Based on this Confidentiality Clause, it is clear that SLS’s cross-claims arise out of the Operating Agreement between the parties and would be under the purview of the arbitration agreement. Several of SLS’s claims involve the Cook-Wongs taking and using SLS’s business information. Except for the seventh and eighth causes of action for intentional interference with prospective economic advantage and intentional interference with contractual relations, all the other causes of action are based on taking confidential and proprietary materials. (See Cross-Complaint, ¶¶ 64, 74, 78-79, 95, 103, and 131.) That being stated, the seventh and eighth causes of action incorporate all the preceding allegations. These two causes of action are based on the alleged results of taking the confidential and proprietary information.

Therefore, SLS’s cross-claims arise out of the business relationship that existed between SLS and the Cook-Wongs by virtue of the LLC Operating Agreement and its Confidentiality Clause. SLS itself previously sought to enforce the arbitration agreement in the LLC Operating Agreement when it tried to compel the Cook-Wongs to arbitration on their claims. The Court denied that motion because the majority of the Cook-Wongs’ claims were not arbitrable under the agreement. Now, however, all of SLS’s cross-claims would be arbitrable because the claims are all of a business nature and arise from the Operating Agreement and its Confidentiality Clause.

SLS argues that Cross-Defendants are judicially estopped from pursuing arbitration after previously opposing it. “The doctrine [of judicial estoppel] applies when: (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 989-987.)

While Cross-Defendants did “successfully oppose” arbitration, as SLS points out, Cross-Defendants were successful because the Court found that the majority of their claims were not arbitrable and the Court did not want the claims heard piecemeal. The motion was not denied because of any defect in the arbitration agreement. Their position then was not wholly inconsistent with their current position, either, because their claims against SLS are of a different nature than SLS’s claims against them. The situations are different. It is not as if Cross-Defendants opposed arbitration of their own claims then turned around and supported arbitration of those claims. They are now moving for arbitration of different claims, SLS’s claims. Cross-Defendants are not judicially estopped from pursuing arbitration for a totally different situation.

Finally, the question remains whether All Love may compel arbitration as a nonsignatory.

“Under that doctrine [of equitable estoppel] …a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Ct. (2011) 193 Cal.App.4th 1222, 1237, quoting Boucher v. All Title Co. (2005) 127 Cal.App.4th 262, 271 and Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217–18 (internal quotation marks omitted).) The sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is, “that the claims plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.” (Goldman, supra, 173 Cal.App.4th at 217–18; accord, JSM Tuscany, LLC, supra, 193 Cal.App.4th at 1237.) “The fundamental point is that a party is not entitled to make use of [a contract containing an arbitration clause] as long as it worked to her advantage, then attempt to avoid its application in defining the forum in which her dispute . . . should be resolved.” (Jensen v. U-Haul Co. of Cal. (2017) 18 Cal.App.5th 295, 306, quoting NORCAL Mut. Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84 (internal quotation marks omitted).) Courts examine the facts alleged in the operative complaint to determine whether equitable estoppel applies. (Goldman, supra, 173 Cal.App.4th at 229–30.) 

Equitable estoppel would apply to All Love because the causes of action against All Love are intimately founded in and intertwined with the underlying contract obligations. The causes of action in SLS’s cross-complaint are based on the idea that the Cook-Wongs breached their agreement or duties to SLS by going off and starting their own business, in this instance, All Love, and using SLS’s business records and client information to start the business. SLS’s claims against All Love would not exist but for the Confidentiality Clause in the LLC Operating Agreement.

Therefore, the petition to compel arbitration is also granted. The case is stayed pending arbitration.

Moving parties to give notice.