Judge: Jon R. Takasugi, Case: 23STCV23596, Date: 2024-09-09 Tentative Ruling

Case Number: 23STCV23596    Hearing Date: September 9, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Plaintiff’s motion to compel arbitration is GRANTED. This action is stayed pending the completion of arbitration.

            On 9/28/2024, Plaintiff NKMD MGMT, LLC filed suit against Manifaith, LLC, Brandon Esparza, Shelby Harvey, and Seung Song, alleging: (1) breach of contract; (2) breach of confidence; (3) fraud and deceit; and (4) declaratory relief.

            Now, Plaintiff moves to compel arbitration of its own Complaint, and to stay proceedings.

Legal Standard

Where the Court has determined that an agreement to arbitrate a controversy exists, the Court shall order the petitioner and the respondent to arbitrate the controversy …unless it determines that…  grounds exist for rescission of the agreement.” (Code Civ. Proc., § 1281.2.) Among the grounds which can support rescission are fraud, duress, and unconscionability. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) The Court may also decline to compel arbitration wherein there is possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2 (c).)

Discussion

The party moving to compel arbitration “bears the burden of proving [the] existence [of an arbitration agreement] by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) The moving party also bears the burden of demonstrating that the claims fall within the scope of the arbitration agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)

            Here, Plaintiff submitted evidence that on 6/22/2022[1], Plaintiff and Defendant Manifaith entered into a Work for Hire Agreement (WFH Agreement) which contained an arbitration clause. (Mhtar Decl., Exh. 1.) Defendant Esparza accepted the agreement on behalf of Defendant Manifaith.

            The arbitration clause provided:

Any dispute arising out of or relating to this Agreement, or any breach thereof, shall be resolved by binding arbitration in Los Angeles, California accordance with the Arbitration Rules of the American Arbitration Association then in effect, and judgment on the award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. All costs and expenses, including attorney's fees, relating to the resolution of any such dispute shall be borne by the party incurring such costs and expenses. Notwithstanding their promise to arbitrate all disputes, the Parties acknowledge that either of them may seek emergency or temporary injunctive relief, but absolutely no other relief, in any court of competent jurisdiction. All other disputes, claims and remedies shall be settled by arbitration

            (Exh. 1.)

Plaintiff submitted evidence that on 1/20/2023, Plaintiff and Defendant Harvey entered into a Severance Agreement which contained an arbitration clause. (Mhtar Decl., Exh. 2.)

The arbitration clause provided:

Except for claims for emergency equitable or injunctive relief which cannot be timely address through arbitration, the Parties agree to submit any claim or dispute arising out of the terms of this Agreement to private and confidential arbitration by a single neutral arbitrator through Judicial Arbitration and Mediation Services, Inc. (“JAMS”)….

            (Exh. 2.)

Plaintiff submitted evidence that on 1/28/2023, Plaintiff and Defendant Song entered into a Severance Agreement which contained an arbitration clause. (Mhtar Decl., Exh. 3.) 

The arbitration clause provided:

Except for claims for emergency equitable or injunctive relief which cannot be timely address through arbitration, the Parties agree to submit any claim or dispute arising out of the terms of this Agreement to private and confidential arbitration by a single neutral arbitrator through Judicial Arbitration and Mediation Services, Inc. (“JAMS”)….

            (Exh. 3.)

      Here, Plaintiff’s claims arise out of allegations that while Defendants were working for Plaintiff pursuant to the Work for Hire Agreement, they disclosed and used “certain confidential, proprietary, and trade secret information exclusively owned by Plaintiff NKMD to provide similar services to TIEV.” (Complaint ¶ 18.) Plaintiff further alleges that Defendants breached the terms of their severance agreements by engaging in competition against Plaintiff and using Plaintiff’s “confidential, proprietary, and trade secret information in order to solicit the same vendors, partners, patients, and any former and current employees connected to Plaintiff.” (Complaint ¶ 25.) 

In opposition, Defendants argue that Plaintiff’s substantial invocation of litigation machinery is inconsistent with an intent to arbitrate and has prejudiced Defendants.

First, as evidence of waiver, Defendants note that Plaintiff waited nearly a year after filing its complaint to seek arbitration, it has actively litigated this case and served discovery on all defendants. Moreover, Defendants contend that Manifaith and Esparza have filed a Cross-Complaint, expended resources responding to NKMD’s discovery requests, and prepared their defense in litigation. (DVN ¶ 5.)

Waiver can be established where the delay and participation in litigation cause prejudice to the opposing party. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 375). Prejudice is shown where the opposing party expends significant time and resources in litigation, including filing responsive pleadings, such as the Cross-Complaint, and conducting discovery. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 86).

Second, Defendants argue that the majority of Plaintiff’s claims—including the noncompete and confidentiality claims—are based on a Non-Compete Agreement (NC Agreement) which does not contain an arbitration clause, rather than the WFH Agreement which does. Moreover, a Cross-Complaint has been filed in this case which names parties—Most Favored Nations LLC, NakedMD, Inc., Justin Ha, and Jane Ha—who were not parties to the WFH Agreement and did not sign any arbitration agreement.

However, as to the issue of waiver, Plaintiff’s counsel first raised the issue of arbitration in December 2023, and sought a stipulation from the parties to arbitrate. Since December 2023, no further actions in the matter have been taken to further the underlying action, including the filing of Plaintiff NKMD's First Amended Complaint, in consideration of potential arbitration. (Mhtar Decl. 7.)  Accordingly, while the Court notes that Plaintiff has engaged in conduct inconsistent with a right to arbitrate, it is insufficiently inconsistent to constitute waiver. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.)

As to the second point, Exhibit 2 of Plaintiff’s motion makes clear that the Separation Agreements, which contain non-compete and trade-secret protection clauses, do contain arbitration clauses. As such, the Court finds Plaintiff’s noncompete and confidentiality claims fall within the scope of the arbitration agreements.

Finally, Defendants argue that even if the arbitration agreements are enforceable, there are other issues which render arbitration unnecessary or impractical. However, to the extent that there are issues not subject to arbitration, the Court orders arbitration to proceed, and stays this action pending the outcome of arbitration. 

Based on the foregoing, Plaintiff’s motion to compel arbitration is granted.

It is so ordered.

Dated:  September    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.