Judge: Joseph Lipner, Case: 24STCV32165, Date: 2025-03-06 Tentative Ruling

Case Number: 24STCV32165    Hearing Date: March 6, 2025    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant JYP USA Inc. (“Defendant”) moves for an order compelling Plaintiff K.M., by and through her guardian ad litem (“Plaintiff”) to arbitrate her claims against Defendant and staying this action pending the resolution of arbitration proceedings. Defendant also seeks an order staying this action pending the resolution of this motion.

The Court tentatively DENIES the motion.  However, the Court requests argument on (a) whether the Court should permit or require additional evidence of fraud apart from the verified complaint; and (b) whether this Court may set aside the order approving the minor’s contract or whether that issue needs to be decided by Judge Kaufman, the judge who issued the order, and if so what procedures should be used to bring the matter before Judge Kaufman.

To the extent possible, Plaintiff shall also be prepared to address the argument raised in Defendant’s reply brief that a claim of fraud in the inducement is for the arbitrator to decide as a matter of law.  Defendant’s reply cited Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1287 in support of the argument.

Background

Initial Background

This is an employment case that relates to the alleged abuse of Plaintiff, a minor, by Defendant, an international K-pop organization. The following facts are taken from the allegations of Plaintiff’s verified Complaint, except where otherwise noted.

In August 2022, Plaintiff submitted an application for Defendant’s A2K Competition (the “Competition”). (Shin Decl. ¶ 2.) Plaintiff and her parents signed Defendant’s Participant Agreement, which included an arbitration agreement. (Shin Decl. ¶ 3.) Plaintiff eventually won the competition and was given an opportunity to work for Defendant. (Shin Decl. ¶ 9.)

In November 2022, while the competition was still ongoing, Defendant informed Plaintiff and nine other finalists that negotiation of their employment agreements with Defendant would soon commence. (Shin Decl. ¶ 7.) Defendant introduced the finalists and their guardians to two law firms. (Shin Decl. ¶ 7.) In December 2022, Plaintiff and the other finalists selected Debra A. White and Devon Spencer of Loeb & Loeb to collectively represent them. (Shin Decl. ¶ 8.) Defendant paid for Loeb & Loeb’s representation of the finalists. (Shin Decl. ¶ 8.)

Plaintiff alleges that she had no meaningful interactions with her attorney and was not generally aware of the terms of the employment agreement that she subsequently entered into with Defendant.  Nor was she granted a meaningful opportunity to consent to the terms. (Complaint ¶ 17.)

The Employment Agreement and Approval by the Superior Court

In January 2023, Plaintiff and Defendant entered a Group Employment Agreement (the “Group Employment Agreement”). The other finalists entered similar agreements with Defendant which experienced similar procedural histories to the Plaintiff’s.

On January 3, 2023, Defendant filed a petition to approve a minor’s contract in the Los Angeles Superior Court in order to seek approval of the Agreement, Los Angeles Superior Court Case No. 23STFL00041. (Graham Decl. ¶ 3, Ex. A.) Defendant concurrently filed petitions relating to the agreements for the other finalists in addition to Plaintiff.

On January 11, 2023, the Los Angeles Superior Court, Judge Shelley Kaufman denied the petition without prejudice. (Graham Decl. ¶ 3, Ex. A.) The Court found that found that a provision which provided that Plaintiff would reside in a residence (the “Group Residence”) shared with other members of Defendant for the initial 4-year term of the agreement was not in Plaintiff’s best interest. (Graham Decl. ¶ 3, Ex. A.) The Court found that a provision for liquidated damages of $2 million, plus attorney’s fees, in the event of certain potential breaches by Plaintiff was not in Plaintiff’s best interest. (Graham Decl. ¶ 3, Ex. A.)

On January 20, 2023, Plaintiff and Defendant entered into an Amended and Restated Group Member Employment Agreement (the “Amended Agreement”). (Complaint ¶ 128, Ex. A; see also Graham Decl. ¶ 5, Ex. C, PDF p. 52 [the Court uses PDF page numbers where page numbering within the exhibit is not provided; these numbers refer to the page number as part of the overall Graham Declaration PDF].)

Defendant subsequently filed a new petition relating to the Amended Agreement, Los Angeles Superior Court Case No. 23STFL05599. (Graham Decl. ¶ 5, Ex. C, PDF p. 52.) At an April 13, 2023 hearing, the Court set a hearing for June 22, 2023 and asked Defendant to revise the agreement to provide more information about the group residence and to re-file the petitions for all of the finalists. (Graham Decl. ¶ 5, Ex. C, PDF p. 52.)

As stated in Defendant’s July 5, 2023 Petition to Approve Contract of Minor filed in Los Angeles Superior Court Case No. 23STFL05599, which was later approved on July 7, 2023:

“At the June 22, 2023 hearing, the Court expressed concerns regarding the possibility of [Defendant] or third parties filming the Group members [of Defendant] in the privacy of their Group Residence, and [Defendant] clarified that … no filming ever need take place there. [Defendant] offered to further amend the Amended Agreement to include a prohibition against all filming at the Group Residence, whether by [Defendant] and/or any third party.

The Court indicated that the Court [was] inclined to approve the Petitions subject to the Court’s receipt of further amendments memorializing the prohibition against filming at the Group Residence.

Subsequently, [Defendant] and [Plaintiff] (and all of [Plaintiff’s] fellow potential Group members) entered into a Second Amendment to the Amended Agreement prohibiting [Defendant] and/or third party [sic] from filming at the Group Residence[.]”

(Graham Decl. ¶ 5, Ex. C, PDF pp. 9, 52.)

            Plaintiff alleges that the representation to Plaintiff and, by extent, the Court, that no recording would occur at the Group Residence was knowingly false. (Complaint ¶¶ 130-132.) In particular, Plaintiff alleges that Defendant had already planned to install hidden cameras in the Group Residence to monitor Plaintiff and other group members without their knowledge or consent. (Complaint ¶ 132(b).)

On July 7, 2023, the Los Angeles Superior Court, Judge Shelley Kaufman, issued an order approving the Amended and Restated Group Employment Agreement (the “Agreement”). (Graham Decl. ¶ 5, Ex. C, PDF p. 59-61.)

Plaintiff’s Employment with Defendant

Plaintiff subsequently won the Competition. On January 3, 2024, Defendant exercised its option pursuant to the Agreement to employ Plaintiff. (Shin Decl. ¶ 10.)

            Plaintiff alleges myriad abuses by Defendant during her employment.

            Plaintiff alleges that Defendant used a complicated and deceptive payment scheme laid out in the Agreement to avoid paying her minimum wages – and, in fact, to put her in debt to Defendant. (Complaint ¶¶ 12-13, 25.) Plaintiff alleges that, while the Agreement provided that Plaintiff would be paid the hourly minimum wage, that amount, in addition to other expenses such as rent for the Group Residence, could be deducted from other income payable to Plaintiff. (Complaint ¶¶ 12-13.) Plaintiff alleges that she was only paid approximately $500.00 per week, despite frequently working days that were 12 hours or longer. (Complaint ¶¶ 21-23, 25.) By April 2024, Defendant claimed that Plaintiff owed Defendant over $500,000.00 as a result of her employment. (Complaint ¶ 37.)

Plaintiff alleges that she was required to work days that were 12 hours or longer. Plaintiff’s scheduled day began at 7:00 a.m., and although the official schedule suggested that practice ended around 7:00 p.m., Plaintiff was pressured to stay at practice until 1-2:00 in the morning. (Complaint ¶¶ 21-23.)

Plaintiff alleges that basic nourishment was withheld as a matter of company policy so that Plaintiff and other group members would maintain an extreme thinness. (Complaint ¶ 26.)

            On September 14, 2023, a dance instructor singled out Plaintiff, yelling at her and demanding that Plaintiff repeat a single dance move hundreds of times over the course of hours. (Complaint ¶¶ 28-29.) The hours of forced repetition cause Plaintiff to tear a tendon in her shoulder. (Complaint ¶ 29.) During this entire time, the dance instructor refused to allow Plaintiff to drink water. (Complaint ¶ 2.)

Plaintiff alleges that Defendant forced her to work through her tendon injury – and, although Plaintiff subsequently went to the hospital, she was expected to return to full dance training immediately. (Complaint ¶ 29.) Defendant insisted that Plaintiff continue performing at full capacity in spite of recommendations by Plaintiff’s doctors and requests by Plaintiff herself that she be allowed rest. (Complaint ¶ 30.)

            Plaintiff alleges that Defendant used hidden cameras to surveil the group members – in contravention to the representations that Defendant made to the Court in order to secure approval of the Agreement. (Complaint ¶ 35.) Plaintiff alleges she discovered hidden cameras, including one located in the dining area, recording the girls’ private conversations and meals without their knowledge or consent. (Complaint ¶ 35.) Plaintiff alleges that a “surveillance sticker” was found on the ceiling of the pantry in order to monitor the group members’ eating habits. (Complaint ¶ 35.)

Procedural History

Plaintiff filed this action on December 8, 2024, raising claims for (1) violation of child labor laws; (2) failure to pay minimum wage; (3) failure to provide breaks; (4) failure to provide safe work environment; (5) wage theft; (6) overtime violations; (7) unjust enrichment; (8) conversion; (9) accounting; (10) failure to maintain records/provide accurate wage statements; (11) intentional infliction of emotional distress (“IIED”); (12) negligence; (13) unfair business practices; (14) child endangerment; (15) breach of contract; (16) fraud and deception in the inducement; and (17) declaratory and injunctive relief. The Complaint is verified by Tracey Madder (“Madder”), Plaintiff’s guardian ad litem. (Complaint at p. 36.)

            On January 22, 2025, Defendant moved to compel arbitration. Plaintiff filed an opposition and Defendant filed a reply.

Legal Standard

Under both the Federal Arbitration Act (“FAA”) and California law, 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 party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code of Civ. Proc., § 1281.2.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.)

“A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference” (Cal. Rules of Court, rule 3.1330.) “With respect to the moving party's burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court. Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160 [internal citations omitted].)

Discussion

The Arbitration Agreement

The Agreement contains an agreement to arbitrate disputes arising out of the Agreement in Los Angeles County, California before JAMS pursuant to the then-existing JAMS rules. (Complaint, Ex. A, § 18.) Plaintiff’s parents, including Madder, Plaintiff’s guardian ad litem, each signed a “Legal Guardian Agreement and Affirmation” of the Agreement, whereby Plaintiff’s parents agreed that they are bound by the same arbitration agreement set forth in Section 18 of the Agreement. (Complaint, Ex. A at pp. 25-28.)

Disaffirmation

“Except as otherwise provided by statute, a contract of a minor may be disaffirmed by the minor before majority or within a reasonable time afterwards or, in case of the minor’s death within that period, by the minor’s heirs or personal representative.” (Fam. Code, § 6710.)

“A contract, otherwise valid, of a type described in Section 6750, entered into during minority, cannot be disaffirmed on that ground either during the minority of the person entering into the contract, or at any time thereafter, if the contract has been approved by the superior court in any county in which the minor resides or is employed or in which any party to the contract has its principal office in this state for the transaction of business.” (Fam. Code, § 6751, subd. (a).)

Plaintiff contends that she repudiates that arbitration agreement in Section 18(a) of the Agreement. (Complaint ¶ 125; Opposition at p. 9:8-10.)  However, because the contract was approved by the Court, as a general matter Plaintiff cannot disaffirm it.   The Court therefore analyzes whether Plaintiff’s claim of fraud changes this result.

Fraud on Plaintiff

A party to a contract may rescind the contract where that party’s consent was obtained through fraud. (Civ. Code, § 1689, subd. (b)(1).) “[F]raud undermines the essential validity of the parties' agreement. When fraud is proven, it cannot be maintained that the parties freely entered into an agreement reflecting a meeting of the minds.” (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1182.)

Plaintiff alleges in the verified Complaint that Defendant did, in fact, record Plaintiff using hidden cameras in the living arrangement. Plaintiff alleges that the promise of lack of cameras was false at the time it was made and was made to induce Plaintiff to enter the agreement. Plaintiff contends that the contract was thus obtained via fraud – both on Plaintiff, and on the Court.

Defendant argues that Plaintiff has not presented evidence of fraud other than the Complaint, but does not address the fact that the Complaint is verified. “Generally, a properly verified complaint … may be treated as a declaration or affidavit.” (ViaView, Inc. v. Retzlaff (2016) 1 Cal.App.5th 198, 217.) It thus appears that Plaintiff has presented evidence of fraud. Defendant has not presented any rebuttal evidence on the fraud issue.

            On the current record, Plaintiff has presented unrebutted evidence that Defendant induced her to enter the Agreement through fraud. This is a basis to permit disaffirmation. Family Code, section 6751 only precludes a minor’s disaffirmation of a court-approved contract that is “otherwise valid”. (Fam. Code, § 6751, subd. (a).) Because fraud undermines the essential validity of the contract, disaffirmation is permitted here.

Fraud on the Court

Here, prior to approving the contract, the Superior Court expressed concerns that there would be hidden cameras filming the Plaintiff in the living arrangement provided by Defendant. The Court’s approval of the contract was premised on an amendment to the contract wherein Defendant promised that there would be no hidden cameras.

“To protect the integrity of the litigation process, the court has the inherent power to set aside a judgment for fraud on the court itself.” (Russell v. Dopp (1995) 36 Cal.App.4th 765, 774–775; see also In re Marriage of Smith (1982) 135 Cal.App.3d 543, 555 [“[A] court has inherent power to set aside a judgment obtained by fraud upon it.”].)

The Court may therefore have inherent equitable authority to set aside the July 7, 2023 order approving the Agreement.  It is possible that the Court need not reach the issue, given the currently unrebutted evidence of fraud on the Plaintiff.  If the Court does need to reach this issue, however, the Court requests argument as to which judicial officer should hear a request to set aside the prior order and the procedure that should be followed for such a request.  (See L.A. County Local Rule 2.23.)

Delegation

Defendant contends that the Agreement delegates questions of arbitrability to the arbitrator.

The United States Supreme Court has stated that “parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 68–69.) “If a party challenges the validity … of the precise agreement to arbitrate at issue, the … court must consider the challenge before ordering compliance with that agreement[.]” (Id. at p. 71.)

“Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” (AT & T Technologies, Inc. v. Communications Workers of America (1986) 475 U.S. 643, 649.) “[C]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so. [Citation.]” (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 939.) “It is similarly well settled that where the dispute at issue concerns contract formation, the dispute is generally for courts to decide.” (Granite Rock Co. v. International Broth. of Teamsters (2010) 561 U.S. 287, 296.)

Here, Plaintiff has disaffirmed the arbitration agreement on the basis of fraud, which necessarily includes disaffirmation of any agreement to delegate questions of arbitrability. Defendant cites no authority indicating that an arbitration agreement can negate a minor’s statutory right to disaffirm a contract – nor does the Agreement purport to restrict Plaintiff’s right to do so.

The Court therefore denies the motion to compel arbitration.