Judge Michael Shultz, Case Number: 24STCV06318, Date: 2025-03-21 Tentative Ruling

DEPARTMENT 40 - MICHAEL J. SHULTZ - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call.

[TENTATIVE] ORDER DENYING MOTION BY DEFENDANT, INTERLANG, LLC, TO COMPEL ARBITRATION AND DISMISS, OR ALTERNATIVELY, TO STAY PROCEEDINGS JOINED BY DEFENDANT MDME HOLDINGS, LLC

The complaint alleges that Defendants employed Plaintiff. Due to a change in the ownership and control of Defendant, Interlang, LLC, the company was subjected to intense and extreme pressure to reduce costs and increase revenues. (Complaint, ¶ 29.) Plaintiff witnessed accounting irregularities, fraudulent billing practices, and an increase in customer complaints about which Plaintiff complained. (Complaint, ¶ 35-36.) Defendants terminated Plaintiff as a “scapegoat for the operational problems caused by Defendants and in retaliation for bringing illegal activities to Defendants’ attention.” Complaint, ¶ 48.)

Plaintiff alleges claims for breach of contract, wrongful termination, breach of fiduciary duty, retaliation, fraud, and other violations of the Labor and Penal Code.

Defendant, Interlang LLC (“Interlang”), seeks an order compelling Plaintiff to binding arbitration pursuant to a written arbitration agreement governed by the Federal Arbitration Act. There is no basis to revoke or void the agreement. Plaintiff refused to stipulate.

The alleged claims fall within the scope of the agreement, which is valid and enforceable. Plaintiff cannot show that the agreement is procedurally or substantively unconscionable. Any offending provisions should be severed. The non-signatories should also be compelled to arbitrate Plaintiff’s claims. The court should dismiss this action, or alternatively, stay the action until completion of arbitration.

Defendant, MDME Holdings, LLC (“MDME”) joins in Interlang’s motion based on the December 4, 2017, employment agreement calling for binding arbitration. All alleged claims fall within the scope of the agreement. Plaintiff agreed to arbitrate with Interlang, and its agents/employees. Plaintiff alleges all employees are agents of the other. MDME joins in Interlang’s other arguments all of which apply to MDME.

Plaintiff argues that the December 4, 2017, agreement (the “2017 agreement”), on which Defendants rely was superseded by an integrated written employment agreement signed by Plaintiff and became effective on July 1, 2021 (“2021 agreement”). It does not contain an arbitration clause. Not all of Plaintiff’s claims are employment related; some have nothing to do with the employment relationship. Other written agreements apply, none of which require binding arbitration of Plaintiff’s claims and none of which Defendants address.

Plaintiff contends that MDME’s joinder is fatally flawed because MDME did not establish an agency relationship with Interlang. MDME did not assert the right to arbitrate as an affirmative defense, thus waiving that right. The joinder is not supported by evidence, nor does it meet the requirements for a noticed motion as it is not supported by a points and authorities or any evidence.

Interlang objects to the Albert Herrera declaration which is irrelevant and is hearsay. The 2017 agreement prohibits modification of its terms absent the written consent of Interlang’s president. Both documents identify arbitration as the appropriate forum for dispute resolution.

Plaintiff’s complaint classifies himself as an employee asserting employment-related causes of action. Plaintiff did not rebut MDME’s argument that it is a proper party to the agreement.

The court can order the parties to arbitrate a case on petition of a party to an arbitration agreement. (Code Civ. Proc., § 1281.2.) The petitioner’s burden is to show that a valid arbitration agreement exists under state law. (Metters v. Ralphs Grocery Co. (2008) 161 Cal.App.4th 696, 701.) The court shall order arbitration unless the court finds that the right to compel arbitration has been waived, grounds exist for rescission of the agreement, or there is another pending action with a third party arising out of the same transactions presenting the possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2 subd (a) – (c).)

Defendants need only show the existence of an agreement not its validity. (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058 ["as a preliminary matter the [trial] court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.”].) The moving party need only attach a copy of the agreement to the petition and incorporate it by reference. (Id. at 1058; Cal. Rules of Court, rule 3.1330 [“The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference."].)

The court has considered MDME’s joinder in Interlang’s motion. Plaintiff claims MDME was required to submit its own points and authorities, however, MDME incorporated the general principles of arbitration as articulated in Interlang’s motion. Any procedural defects in the motion was not prejudicial to Plaintiff, who opposed MDME’s joinder, all of which the court has considered.

Plaintiff’s contention that MDME waived its right to arbitrate by failing to assert it as an affirmative defense is not persuasive. Plaintiff cites Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562 wherein a defendant did assert arbitration as an affirmative defense, but the court determined that defendant waived its right to arbitrate because there was clear and convincing evidence that the defendant was aware of its right to compel arbitration but intentionally abandoned it by actively pursuing discovery, by taking the plaintiff’s deposition, requesting a jury trial, and waiting 13 months after commencement of the action to file a motion to compel arbitration. (Quach at 586-587.) None of the facts present in Quach are present here.

Interpreting contracts is a judicial function. (Cisneros Alvarez v. Altamed Health Services Corporation (2021) 60 Cal.App.5th 572, 585 [“Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms.”].) In construing contracts, "[t]he words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed. (Civ. Code, § 1644.) If the contract’s language is clear and unambiguous, the court is "bound to give effect to the plain and ordinary meaning of the language used by the parties." (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684.)

Defendant relies on the 2017 arbitration agreement requiring binding arbitration to resolve disputes between the company and employee. (Alice Marquez Decl., Ex. B.) The agreement expressly supersedes prior agreements. (Id. at p.2, ¶ 3.) Any agreement contrary thereto “must be entered into, in writing, by the President of Company. It further provides that no supervisor or representative of company , other than the President, has any authority to enter into any agreement for employment for any specified period of time or make any agreement contrary to the foregoing. Oral representations made before or after [Plaintiff was] am hired do not alter this Agreement.” (Id.)

Plaintiff submits a 2021 employment agreement signed by Interlang’s chairman of the board, Glenn Scolnick, and Plaintiff. (Plt.'s Ex. 1) The 2021 agreement expressly states that “it is intended to set forth the terms of [Plaintiff’s] employment with the company effective July 1, 2021. (Id. at .pdf 24.) The offer was contingent upon Plaintiff’s signing the “Company’s Arbitration Agreement as well as a Proprietary Information and Trade Secrets Agreement. Refusal to enter into either agreement will result in this offer being withdrawn or your employment with the Company terminated.” (Id. at .pdf p.26.) Interlang did not object to the introduction of the 2021 agreement.[2]

Defendant argues without authority that the 2017 agreement is integrated and prohibits modification of terms absent Defendant’s written consent. (Reply, 2:10-14). This is a legal conclusion. A contract is “integrated” if the writing demonstrates that the parties intended that the document is a final expression of the terms of their agreement and may not be contradicted by evidence of a prior agreement or of a contemporaneous agreement. (Code Civ. Proc., § 1856.) Defendant appears to be arguing that the 2017 and 2021 agreements should be considered together, ie., that the 2017 agreement should be incorporated into the 2021 agreement. Several contracts relating to the same matters and between the same parties and made as parts of substantially one transaction are to be taken together. (Civ. Code, § 1642.) Incorporation requires that the reference to the other document be "clear and unequivocal.” (R.W.L. Enterprises v. Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1028.) The document must “guide the reader to the incorporated document." (Id.)

The 2021 agreement does not refer either expressly or impliedly to the 2017 agreement. Rather, it refers to another agreement to govern the parties going forward that Plaintiff had to sign as a contingency of employment. The 2021 employment agreement expressly intended to set forth terms of employment effective July 1, 2021. (Plt.'s Ex. 1, .pdf 24.) Thus, the clear and unambiguous language of the 2021 agreement governed Plaintiff’s employment going forward.

As Plaintiff argues, there is an intent that prior agreements be superseded. The 2021 contract states: “By entering into this agreement, you are acknowledging and representing that there are no oral, collateral, or other written statements by any employee or representative of the Company inconsistent or contrary to the above, … .” (Plt.'s Ex. 1, .pdf p. 26.)

The intent of the parties, expressed in the 2021 agreement, set forth terms that were effective beginning in 2021, it contemplated Plaintiff’s signing an arbitration and trade secret agreement without reference to the 2017 agreement, and there is no evidence of the subsequent arbitration agreement mentioned in the 2021 agreement.

Absent an agreement that became effective in 2021 requiring Plaintiff to arbitrate his claims, and the scope of issues subject to arbitration, the court cannot compel Plaintiff to arbitrate.

[1] The motion to compel arbitration (Res. No. -3804) filed December 12, 2024, with a hearing date of February 11, 2025, was advanced and vacated by the court. (M.O. 1/6/25.)

[2] All four objections to Plaintiff’s evidence are sustained as irrelevant (separation agreement, partnership agreement, repurchase agreement, and promissory note).