Judge: Helen Zukin, Case: 20SMCV01202, Date: 2022-12-09 Tentative Ruling
Case Number: 20SMCV01202 Hearing Date: December 9, 2022 Dept: 207
Background
Cross-Defendant/Plaintiff Ardeshir Haerizadeh
(“Plaintiff”) started Yucatan, a company which manufactured guacamole.
Cross-Complainant Landec Corporation (“Landec”) is a company engaged in the
food and pharmaceutical business. Landec purchased Yucatan on December 1, 2018,
pursuant to the Stock Purchase Agreement (“SPA”) for approximately $80 million
in cash and stock. Approximately $15 million worth of Landec stock was paid
into an escrow account to be released to certain Equityholders if there were no
claims for indemnification after an agreed upon time.
The
SPA included representations and warranties, including, among other things,
that Yucatan was operating legally and its financial statements were accurate.
Landec alleges each Equityholder agreed to be severally liable for their
proportionate share of damages arising from a breach of representations or
warranties by Yucatan, and such amounts would be paid first out of the escrow.
(Cross Complaint at ¶84.)
Nine
months after the acquisition of Yucatan, Landec alleges it discovered Yucatan
had been illegally dumping wastewater and Mexican officials had been bribed to
cover it up. Landec then fired Plaintiff. Along with disclosing the illegal
dumping to the U.S. State Department, Landec also sought indemnification from
the indemnification escrow for costs to remediate the misconduct. Plaintiff,
however, denied the demand on behalf of all Equityholders.
Plaintiff filed a wrongful termination
action, and Landec filed the Cross-Complaint alleging fraud, breach of
contract, and indemnity claims against Plaintiff and every prior Equityholder
of Yucatan, including Cross-Defendant
Desarrollos Immobiliarios Cuga, S.A.P.I. De CV (“Cuga”).
Cuga now brings this motion to stay or dismiss Landec’s
Cross-Complaint against it for forum non conveniens pursuant to a forum
selection clause contained in the SPA. Landec opposes Cuga’s motion.
Legal Standard
When a court
upon motion of a party or its own motion finds that in the interest of substantial
justice an action should be heard in a forum outside this state, the court must
stay or dismiss the action in whole or in part on any conditions that may be just.
(Code Civ. Proc., § 410.30, subd. (a). This principle is the codification of the
firmly established forum non conveniens doctrine, which simply provides that
a court may resist imposition upon its jurisdiction even when jurisdiction is authorized
by the letter of a general venue statute. (Great Northern R. Co. v Superior Court
(1970) 12 Cal.App.3d 105, 108-110.)
A defendant
may enforce a forum-selection clause by bringing a motion pursuant to California’s
forum non conveniens statutes, because these statutes ‘are the ones which generally
authorize a trial court to decline jurisdiction when unreasonably invoked and provide
a procedure for the motion.” (Global Financial Distribtuors Inc. v. Superior
Court (2019) 35 Cal.App.5th 179, 186.) A motion to dismiss for forum non conveniens
“based on a forum selection clause is a special type of forum non conveniens motion.
The factors that apply generally to a forum non conveniens motion do not control
in a case involving a mandatory forum selection clause.” (Berg v. MTC Electronics
Technologies Co. (1998) 61 Cal.App.4th 349, 358.)
California
Code of Civil Procedure section 410.30 states, in relevant part: “(a) When a court
upon motion of a party of its own motion finds that in the interest of substantial
justice an action should be heard in a forum outside this state, the court shall
stay or dismiss the action in whole or in part on any conditions that may be just.”
California
Code of Civil Procedure section 418.10 states, in relevant part: “(a) A defendant,
on or before the last day of his or her time to plead or within any further time
that the court may for good cause allow, may serve and file a notice of motion for
one of more of the following purposes: . . . (2) to stay or dismiss the action on
the ground of inconvenient forum.”
California
Code of Civil Procedure section 418.10, subdivision (b)’s codification of “[f]orum
non conveniens is an equitable doctrine invoking the discretionary power of a court
to decline to exercise the jurisdiction it has over a transitory cause of action
when it believes that the action may be more appropriately and justly tried elsewhere.”
(Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.)
On a motion
to dismiss for forum non conveniens pursuant to a mandatory forum selection clause,
the only issues for the court’s consideration are (1) whether the forum selection
clause is indeed mandatory, as opposed to permissive; (2) whether the forum selection
clause covers the claims in the case; and (3) whether the forum selection clause
is “unreasonable.” (Berg, supra, 61 Cal.App.4th at pp. 358-359.)
With regard
to reasonableness “[m]ere inconvenience or additional expense is not the test.”
(Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491,
496.) Instead, a forum selection clause is unreasonable if “the forum selected would
be unavailable or unable to accomplish substantial justice.” (CQL Original Products,
Inc. v. National Hockey League Players’ Assn. (1995) 39 Cal.App.4th 1347, 1354.)
In making this determination, the choice of forum “must have some rational basis
in light of the facts underlying the transaction.” (Ibid.)
Analysis
Cuga brings this motion to enforce the
forum selection clause contained in Section 13.07 of the SPA. Section 13.07 of
the SPA provides:
The parties hereto agree that any
Action seeking to enforce any provision of, or based on any matter arising out
of or in connection with, this Agreement and the other Transaction Documents or
the transactions contemplated hereby and thereby shall be brought exclusively
in the … federal courts located in Los Angeles, California in the United States
of America, and each of the parties hereby irrevocably consent to the
jurisdiction of such courts… Process in any such action may be served on any
party anywhere in the world, whether within or without the jurisdiction of any
such court. Without limiting the foregoing, each party agrees that service of
process on such party as provided in Section 13.01 shall be deemed effective
service of process on such party.
(Ex. A to Herich Decl.)
There is no dispute this forum
selection clause is a mandatory clause which covers Landec’s claims against
Cuga. Rather, the parties dispute whether this clause is unreasonable as
applied to those claims.
Landec argues the clause is
unreasonable because Landec cannot bring its Cross-Complaint in federal court
in Los Angeles are required by the clause because Landec’s claims arise
exclusively under state law, not federal law, and there would be no diversity
because Landec and Plaintiff/Cross-Defendant Ardeshir Haerizadeh are both
California residents. Cuga does not claim Landec would be able to bring its
entire Cross-Complaint in federal court, but rather argues Landec can litigate
its Cross-Complaint against Cuga in federal court while simultaneously litigating
the same Cross-Complaint against the remaining Cross-Defendants in this Court.
Landec argues Plaintiff is an indispensable party to its Cross-Complaint. Cuga
argues Plaintiff is not an indispensable party.
Ultimately, the Court does not need to
decide the issue. Even if the Court were to adopt Cuga’s argument and hold
Plaintiff is not an indispensable party on Landec’s Cross-Complaint, the Court
would find it unreasonable to enforce the forum selection clause as to Landec’s
claims against Cuga and require Landec to litigate the same claims
simultaneously in two separate forums. As the Court explained in Bancomer v. Superior Court (1996) 44 Cal.App.4th 1450 in declining
to enforce a forum selection clause:
It would be unreasonable and illogical to have an individual
involved in simultaneous litigation in two separate forums, over the same
issue…. This simultaneous litigation could result in conflicting rulings.… This
outcome violates principles of judicial economy. Additionally, we agree with
the superior court's conclusion that “[b]ecause Bancomer's role and
relationship to all the plaintiffs’ purchases of the condominiums and the
sellers of the condominiums is the same, namely, that of a trustee, it should
reasonably litigate all the claims against it in the same forum.”
(Id. at
1462.)
Landec’s Cross-Complaint does not
assert any causes of action solely against Cuga, instead the Cross-Complaint
asserts causes of action against all Cross-Defendants for conspiracy,
contractual indemnity, breach of contract, equitable indemnity, and unjust
enrichment. Requiring Landec to litigate these claims against Cuga in federal
court while simultaneously litigating the same causes of action in state court
is unreasonable. This is particularly true given Section 2.09(a) provides
Plaintiff “shall act as the agent for all of the Equityholders and shall
have authority to bind each Equityholder in accordance with this Agreement, and
the Equityholders’ Representative may rely on such appointment and authority
until the receipt of notice of appointment of a successor” representative.
Plaintiff thus had the power to bind the Equityholders—including Cuga—with
respect to the choice of forum for this action and chose to bring this action
in state Court. The Court finds it would be unreasonable to require Landec to
prosecute claims against Cuga in one forum while simultaneously litigating
those same claims against Cuga’s agent and representative in a second forum.
Accordingly, Cuga’s motion to dismiss
or stay for forum non conveniens is DENIED. As the Court finds the forum
selection clause would be unreasonable as applied to Landec’s claims against
Cuga, the Court need not determine whether Plaintiff is an indispensable party
to those claims or whether Cuga has waived the forum selection clause and
declines to do so.
Conclusion
Cross-Defendant
Desarrollos Immobiliarios Cuga, S.A.P.I. De CV’s Motion to Dismiss or Stay
Landec’s Cross-Complaint is DENIED.