Judge: Jacqueline Lewis, Case: 22PSCV00335, Date: 2022-12-12 Tentative Ruling

Case Number: 22PSCV00335    Hearing Date: December 12, 2022    Dept: A

Defendants Vincent Chi Chung Cheng and Yani Qiu’s Motion to Compel Arbitration of Complaint and Stay Proceedings

Respondent: Plaintiff Shenzhen Jujin Paper Packaging Co., Ltd, individually and derivatively on behalf of Ju Jin Packaging USA

TENTATIVE RULING

Defendants Vincent Chi Chung Cheng and Yani Qiu’s Motion to Compel Arbitration of Complaint and Stay Proceedings is GRANTED.  Proceedings are STAYED pending the outcome of arbitration.

BACKGROUND

This is a derivative business litigation action. On April 22, 2014, Plaintiff Shenzhen Jujin Paper Packaging Co., Ltd. entered into a partnership agreement with Defendant Vincent Chi Chung Cheng (Cheng), who was the chief executive officer and sole director of Vinoki Packaging Co. (Vinoki). Defendant Yani Qiu (Qiu), also known as Nicole Qiu, was the chief financial officer and corporate secretary of Vinoki. Vinoki’s net income and excess debt obligations were apportioned among Plaintiff and Cheng in the amounts of 45% and 55% respectively. From 2014 to 2015, Plaintiff made capital contributions to Vinoki in the amount of no less than $120,000.

On January 20, 2015, Vinoki was renamed as Ju Jin Packaging USA. On June 21, 2018, Cheng provided a share certificate stating Plaintiff owned 10,408 shares or 51% and Cheng owned 10,000 shares or 49%. On September 6, Ju Jin Packaging USA filed a corporate statement of information that identified Cheng as president, chief executive officer, and sole director while Qiu was identified as chief financial officer and secretary. Beginning June 2021, Plaintiff alleges it discovered Cheng and Qiu were using corporate funds for their own personal use. On March 15, 2022, Plaintiff removed Cheng and Qiu from their positions. However, on March 22, Cheng submitted another filing to the California Secretary of State that restored Cheng and Qiu to their positions without Plaintiff’s authorization.  

On April 5, 2022, Plaintiff filed a complaint, individually and derivatively on behalf of Ju Jin Packaging USA, against Cheng and Qiu (collectively, Defendants) as well as Does 1-15, alleging the following causes of action: (1) breach of fiduciary duty pursuant to Corporation Code section 315, subdivision (a); (2) breach of fiduciary duty pursuant to partnership agreement; (3) breach of contract; (4) aiding and abetting breach of fiduciary duty; (5) conversion; (6) unjust enrichment; and (7) declaratory relief.

On June 28, 2022, Defendants filed the present motion. A hearing on the motion, case management conference, and Status Conference Re: Mediation are set for December 5, 2022.

ANALYSIS

Defendants argue Plaintiff’s complaint is subject to a valid and binding arbitration agreement. For the following reasons, the court agrees.

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)  The court must grant a petition to compel arbitration unless it finds no written agreement to arbitrate exists, the right to compel arbitration has been waived, grounds exist for revocation of the agreement, or litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues.  (Code Civ. Proc., § 1281.2.) A petition to compel arbitration functions as a motion. (Code Civ. Proc., § 1290.2.) Pursuant to Code of Civil Procedure, section 1281.4, “[i]f a court of competent jurisdiction . . . has ordered arbitration of a controversy . . . 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 this case, Defendants point to section 5 of the “Cooperation agreement” between Plaintiff (named in the agreement as “Party A”) and Vinoki (named in the agreement as “Party B”) that states as follows:

For all disputes arising out of or in connection with this Agreement, Party A and Party B need to negotiate together, and if the negotiation fails, submit it to the Arbitration Commission for arbitration. The outcome of the arbitral award shall be binding on both parties.

As an initial matter, Plaintiff argues Defendants failed to establish the existence of the arbitration agreement because they did not state the provisions or paragraphs of the written agreement that compels arbitration in Defendants’ motion as required by Rule 3.1330 of the California Rules of Court. The rules require a motion to compel arbitration to state the provisions that provide for arbitration verbatim or a “copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court 3.1330.)

Here, Cheng’s supplemental declaration quotes the provision from the “‘Partnership Agreement’ referenced in Plaintiff’s Complaint” and provides copies of the partnership (cooperation) agreement in its original Mandarin form, as well as a copy translated into English. The court finds Defendants satisfied their burden of establishing the existence of an arbitration agreement.

Next, Plaintiff contends the arbitration agreement is unenforceable because Ju Jin Packaging USA and Qiu are not signatories to the arbitration agreement. However, those claims are contradicted by Plaintiff’s own complaint. The partnership agreement lists Party A as Plaintiff and Party B as Vinoki. (Complaint, Ex. B.) Subsequently, Plaintiff alleged Vinoki’s articles of incorporation were amended to rename it as “Ju Jin Packaging USA.” (Complaint, ¶ 2, 10.) Cheng admits to executing the partnership agreement as “Party B.” (Cheng Decl., ¶ 2.) Furthermore, Plaintiff alleged Cheng was the chief executive officer and sole director of Ju Jin Packaging USA. (Complaint, ¶ 3.) Plaintiff also alleged Qiu was the corporate secretary of Vinoki and chief financial officer and corporate secretary of Ju Jin Packaging USA and (Complaint, ¶ 4, 7.)

Ultimately, “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.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.)  To determine whether Defendants can invoke the arbitration clause in the partnership agreement, the court also considers Plaintiff’s next argument that the first, fifth, sixth, and seventh causes of action alleged here are unconnected to the partnership agreement.

A signatory’s claims are intertwined with the agreement containing the arbitration provision if “based on the same facts and are inherently inseparable from arbitrable claims against signatory defendants.” (Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828, 833 (Turtle Ridge), quoting Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714.)

Here, Plaintiff’s first cause of action against Ju Jin Packaging USA and Cheng is based on Cheng’s alleged breach of fiduciary duties owed to Ju Jin Packaging USA and Plaintiff derivatively as a shareholder. While these fiduciary duties are established pursuant to Corporation Code section 315, Plaintiff would not be able to bring this derivative action without an ownership interest, which came from the partnership agreement.

Plaintiff’s fifth cause of action for conversion and sixth cause of action for unjust enrichment against Cheng and Qiu both derive from Defendants’ appropriation and management of corporate assets. Furthermore, Plaintiff’s seventh cause of action for declaratory relief requests clarification of ownership interests in Ju Jing Packaging USA. The partnership agreement specifically vests full authority over operational matters with Ju Jin Packaging USA. (Complaint, Ex. B, § III(2).) It also covers transfer of partnership and capital contributions, initial amounts of investment, surplus distribution percentages, and debt assumption percentages. (Complaint, Ex. B.) Thus, Plaintiff’s causes of action are sufficiently intertwined with the business relationship governed by the partnership agreement to estop Plaintiff’s from avoiding that agreement’s arbitration provision. (Turtle Ridge, supra, 140 Cal.App.4th at p. 833-834.)

The supplemental declarations filed by Plaintiff do not persuade the court to change or modify its tentative ruling as to Defendants Qui and Ju Jing Packaging USA.

The court declines to exercise its discretion and refuses to limit the arbitration agreement to Defendant Cheng only.  As such, the concern regarding conflicting rulings is moot. As noted, the court finds Defendants Qui and Ju Jing Packaging USA are covered by the arbitration agreement.

Accordingly, Defendants’ motion to compel arbitration is GRANTED.

CONCLUSION

Based on the foregoing, Defendants’ motion to compel arbitration is GRANTED. This action is STAYED pending completion of binding arbitration.