Judge: H. Jay Ford, III, Case: 23SMCV05548, Date: 2024-09-12 Tentative Ruling

Case Number: 23SMCV05548    Hearing Date: September 12, 2024    Dept: O

 Case Name:  American Capital Enterprises, Inc. v. Evocative, Inc.

SUBJECT:                 MOTION TO COMPEL ARBITRATION

MOVING PARTY:   Defendant Evocative, Inc.

RESP. PARTY:         Plaintiff American Capital Enterprises, Inc.

TENTATIVE RULING

Defendant Evocative, Inc.’s Motion to Compel Arbitration is GRANTED. Defendant provides the existence of a valid arbitration agreement within the 2018 Master Service Agreement (“MSA”). Plaintiff does not meet their burden to show any defense to the arbitrability of the matter. The Court finds that the 2018 MSA Arbitration Agreement applies to Plaintiff’s claims governs the claims matter. The action is stayed pending resolution of arbitration pursuant to CCP §1281.4.

Defendant Evocative, Inc.’s Objections are SUSTAINED as not relevant to the matter under Evid. Code, §§ 210, 350

REASONING

            Under both the Title 9 section 2 of the United States Code (known as the Federal Arbitration Act, hereinafter “FAA”) and the Title 9 of Part III of the California Code of Civil Procedure commencing at section 1281 (known as the California Arbitration Act, hereinafter “CAA”), arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract.  (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) 

            “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)   “The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute.” (Rice v. Downs (2016) 247 Cal.App.4th 1213, 1223, citing Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686-87.)   “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, 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…”  (Code Civ. Proc., § 1281.2.)

            “A party opposing the petition bears the burden of proving by a preponderance of evidence any fact necessary to its defense.” (Olvera v. El Pollo Loco, Inc. (2009) 173 Cal.App.4th 447, 453.) CCP §1281.2 only allows the Court to deny enforcement of an applicable arbitration agreement where the party resisting arbitration demonstrates (1) waiver; (2) grounds for rescission of the agreement; or (3) subsection (c) grounds involving third parties to the arbitration agreement and potential for inconsistent rulings of fact or law. (See Code Civ. Proc., § 1281.2.)

I.      Petitioner Meets Burden to Prove Existence of Valid Arbitration Agreement

            Defendant Evocative, Inc. (“Evocative”) moves to compel arbitration based on mandatory arbitration provisions within both the 2018 and 2022 Master Service Agreements (“MSA”) entered into by Plaintiff American Capital Enterprises, Inc. (“ACE”). (See Mektrakarn Decl., ¶¶ 6, 8; Ex. 2, 5.) Evocative provides a declaration attached to the motion from Ted Mektrakarn (“Mektrakarn”), who declares he is the Co-Chief Executive Officer for VPLS, Inc. (“VPLS”) and thus has “personal knowledge of the facts stated herein and [is] competent to testify on the matters addressed.” (Id., ¶ 1.) Mektrakarn declares that Evocative does own VPLS, but both Evocative and VPLS are subsidiaries of EVOPLS, Inc, and in 2018 ACE “engaged VPLS to store certain of ACE’s digital data.”  (Id., ¶¶ 2, 3.) Mektrakarn declares that on 3-20-18 ACE accepted, and signed, a quote for VPLS’s cloud-based services which incorporated the 2018 MSA. (Id., 4–6; Ex. 2.)  Mektrakarn declares that on October of 2022 ACE “accepted two new, interrelated quotes for services from VPLS,” and attached to the quotes was the 2022 MSA. (Id.,¶ 8; Ex. 4, 5.) ACE alleges that they contracted with VPLS for the cloud services within the Complaint, however they listed Evocative as the Defendant due to the belief that Evocative acquired and absorbed VPLS. (Compl., ¶ 9, fn. 1.)

            The relevant portions of the mandatory arbitration agreement within the 2018 MSA states:

Arbitration. In the event of any claim, dispute or controversy arising out of or relating to the interpretation, performance and/or breach of this Agreement (except for claims for injunctive relief), the parties agree that any claim, dispute and/or controversy which would otherwise require or allow resort to any court or other governmental dispute resolution forum between the parties whether based on tort, contract, statutory or equitable law, or otherwise, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act.

(Mektrakarn Decl., ¶ 6; Ex. 2, § 15.9, subd. (b).)

The mandatory arbitration agreement within the 2022 MSA states:

Arbitration. Except for disputes regarding unpaid Customer fees due to Company, any claim or controversy arising out of or relating to the Agreement, or any breach thereof between the Parties, shall be submitted to arbitration in San Francisco or Los Angeles, California, before an experienced arbitrator who has been an attorney, retired judge or C-level executive selected in accordance with the Rules of the American Arbitration Association, as the exclusive remedy for such claim or controversy. Either party desiring to arbitrate shall give written notice to the other party within a reasonable period after the party becomes aware of the need for arbitration. The decision of the arbitrator shall be final and binding. Judgment on any award rendered by such arbitrator may be entered in any court having jurisdiction over the subject matter of the controversy. The fees and costs of the arbitrator shall be paid equally by the Parties. With respect to disputers regarding unpaid Customer fees, Company shall have right to file a lawsuit to attempt to collect these unpaid fees.

(Id., ¶  8; Ex. 5, § 7, subd. (k).)

Evocative shows that the 2018 MSA applies to the 2018 Quote, including any “Service Orders” defined as “orders for Services on Host’s standard service order forms, quotes, invoices, and/or professional services engagement agreements. (Id., ¶ 6; Ex. 2, § 1.10, 2 [“The term and conditions contained in this Agreement shall be binding upon any Service Order together with any supplemental terms and conditions, including the SLA, Acceptable Use Policy, Privacy Policy, and any other exhibit to this Agreement.”] Additionally Evocative shows that the 2018 MSA renews automatically for one-year periods. (Id., ¶ 6; Ex. 2, § 3.1.)

Evocative shows that the 2022 quotes are governed by the 2018 MSA through the following clause within the 2022 quotes:

Terms and Conditions

The following terms and conditions shall govern this Quote unless a valid Master Services Agreement between the parties, if any, for professional services has been executed and is in force at the time any Quote is executed; in which case the terms of the Master Services Agreement shall govern to the extent that they are inconsistent with this Quote.

(Id., ¶ 8; Ex. 5 at p. 6 (p. 57 of Motion.)

The 2018 MSA was in force at the time of the 2022 Quote was executed, thus the 2018 MSA, including the 2018 mandatory arbitration provision, governs the quote under the terms and conditions of the 2022 Quotes.

ACE argues that Evocative cannot provide a binding arbitration agreement because the Complaint is based specifically on the 2022 Backup Agreement, Ex. 4 in the motion, which does not contain any attached terms and conditions, and thus the integration clause attached to this specific quote governs the quote meaning there is no arbitration agreement for this specific quote. (See Opposition, p. 7–10; Compl., 16, Ex. 1)

The Court is not persuaded. The 2022 Backup Agreement specifically states:

Thank you for your inquiry. We are pleased to provide you with this quote. https:/ /www.evocative.com (888) 365-2656 Unless another VPLS contract form is noted, this quote is subject solely and exclusively to the VPLS Terms and Conditions attached hereto and incorporated by this reference herein. These Terms contain the entire understanding of the parties with respect to the sale of product contained within this quote and supersede all prior communications between the parties, regardless of form. In no event shall pre-printed terms on any customer document (PO, confirmation, etc.) modify or add to the VPLS Terms referenced herein.

(Mektrakarn Decl., ¶ 8; Ex. 4.)

There were no terms and conditions attached to this specific quote in Ex. 4, but there were terms and conditions included in the second quote sent in Ex. 5 which was sent on the same date as the Ex. 4 Quote and agreed to within a minute of the Ex. 5 Quote. (Id., ¶ 8; Ex. 4, 5.) The 2022 Quotes were essentially related to the same subject matter, the continuation so services between ACE and Evocative, and thus the circumstances under which they were executed requires them to be interpreted as a single transaction. (See Civ. Code, § 1642 [“Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.”] Additionally, it is clear from the plain language that the integration clause refers to any terms and conditions which are attached the quote and not to the quote itself. ACE provides a declaration that the quotes within Ex. 4 and 5 were sent alongside each other with the understanding that the terms and conditions applied to both quotes.  (Id., ¶ 8.)

Furthermore, the 2018 MSA is applicable to any service orders entered into between the parties, since the 2018 MSA renewed every year after the parties entered into the contract. Neither party provides any evidence of opting out of the 2018 MSA, and thus, the 2018 applies to the Ex. 4 quote with or without the Ex. 5 quote terms and conditions.

Thus, Evocative has provided a valid arbitration agreement within the 2018 MSA that governs the dispute. The burden now shifts to ACE to provide any defenses to the compelling of arbitration.

II.   Plaintiffs Burden to Prove a Defense to Enforcement

a.     Plaintiff incorrectly argues there are conflicting venue and jurisdiction clauses, and thus is no clear agreement to arbitrate

            ACE argues that the if the 2022 MSA governs, then there are conflicting venue and jurisdiction provisions between the 2022 Additional Storage Agreement, the 2022 Backup Agreement and the 2022 MSA. (Oppo., pp. 10:17–24–12:8.) This argument is ultimately not persuasive since the Court has found that the 2018 MSA governs, however, even assuming arguendo the 2022 MSA governs, the argument still fails.   Separate venue and jurisdiction provisions do not necessarily “displace the application of the Federal Arbitration Act.” (Supply Co., Inc. v. L J T Flowers, Inc. (2020) 58 Cal.App.5th 180, 185.) Both the 2018 and 2022 MSA are governed by the FAA, and thus since there are separate venue and jurisdiction provisions that alone will not render the arbitration agreement void. (See Mektrakarn Decl., ¶¶ 6, 8; Ex. 2, 5.) The Terms and Conditions included in the 2022 Additional Storage Agreement are superseded by any valid MSA entered into at the time of the quote, which at that time, was the 2018 MSA. (See Id., ¶ 8, Ex. 5 at p. 6 [“The following terms and conditions shall govern this Quote unless a valid Master Services Agreement between the parties, if any, for professional services has been executed and is in force at the time any Quote is executed; in which case the terms of the Master Services Agreement shall govern to the extent that they are inconsistent with this Quote.”] Thus, there are no conflicts between the quote Terms and Conditions and the MSA since the active MSA will govern.

            Additionally, the majority of “arbitration agreements contain a choice of law and choice of forum clause that directly follows the arbitration clause . . .” (Duffens v. Valenti (2008) 161 Cal.App.4th 434, 446.) The provision within the 2022 MSA stating that the parties submit to sole and exclusive jurisdiction of the courts of California, is a choice of forum clause that works alongside the arbitration clause for the exact purposes of the dispute at issue here, courts resolving the issue of whether there in fact is an agreement to arbitrate. Furthermore, for the areas that are carved out of the arbitration agreement, i.e.payment disputes, the venue clause provides the venue for those disputes to be brought. (See Mektrakarn Decl., ¶ 8; Ex. 5, § 7(h).)

            ACE argues that the 2018 MSA states arbitration must be in Orange County while the 2022 MSA arbitration must be brought in either San Francisco or Los Angeles, and thus the two provisions are in conflict leading to a void arbitration agreement. The Court finds that the 2018 MSA governs, as analyzed above, thus the arbitration must be brought in Orange County. There is no conflict between the two contracts when the 2018 MSA governs the dispute.

b.     Arbitration clause is not inconspicuous, nor fraudulent.

            Ace argues there is “no agreement to arbitrate because the arbitration clauses in the 2018 and 2022 MSA are inconspicuous, especially in relation to the 2022 Backup Agreement, citing to Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc. (2020) 58 Cal.App.5th 180, 185.

            In Domestic Linen Supply, the arbitration agreement was in small font, contained no heading, was located after the signature line, and buried among “closely spaced lines of small type,” leading the court to find the agreement “deceptive” and thus did not indicate an agreement to arbitrate. (Ibid.) The 2018 MSA Arbitration Agreement, which governs this dispute, is not buried among other provisions, in fact, the provision is one full page of the agreement. (See Mektrakarn Decl., ¶ 6; Ex. 2 § 15. at pp. 11–12.) The terms “MEDIATION AND ARBITRATION,” are in all caps and underlined at the top of the page and “Arbitration” is underlined in section § 15.9(b). (Ibid.) Additionally, there is a signature line at the bottom of the 2018 MSA. (Id., p. 40 of the motion.) The 2018 MSA arbitration agreement is not intentionally deceptive, the situation in Domestic Linen Supply is distinguishable from the issue at hand, and thus the arbitration clause here is conspicuous.

            ACE argues the 2022 Backup Agreement does not include an arbitration clause, therefore ACE was not put on notice of the arbitration agreement within the new quotes, thus the 2022 MSA is based on fraud and void. This argument fails since ACE had notice of the arbitration agreement within the 2018 MSA which governed all future quotes by the terms of the 2018 MSA, and additionally governs this dispute, as analyzed above. (See Mektrakarn Decl., ¶ 6; Ex. 2 § 2 [Mektrakarn Decl., ¶ 6; Ex. 2 § 2 [“The term and conditions contained in this Agreement shall be binding upon any Service Order.”]

c.      Plaintiff argues the motion was filed for delay

            Ace argues the that even though this motion was filed on 6-3-24, Evocative has not responded to written discovery requests served on 4-19-24, thus the Court should compel ACE to immediately respond to discovery since a motion to compel arbitration does not stay ongoing proceedings. (See OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 140 [“The filing of a petition to compel arbitration does not automatically stay ongoing proceedings; the party seeking arbitration must request one.”) This argument is MOOT since the motion to compel arbitration is GRANTED and the case is now stayed pending resolution of arbitration.

III.           Stay pending resolution of arbitration pursuant to CCP §1281.4 

            “If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4.)

The action is stayed pending resolution of arbitration pursuant to CCP §1281.4.