Judge: Monica Bachner, Case: 22STCV10459, Date: 2023-02-27 Tentative Ruling

Case Number: 22STCV10459    Hearing Date: February 27, 2023    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendants Monsters Ink, LLC’s and Philip Kim’s motion to compel arbitration of Plaintiff Dominie Lee’s claims in this action is granted.  The case is stayed pending arbitration.  The matter is set for a status conference regarding arbitration on February 27, 2024, at 8:30 a.m.  The parties are ordered to file a joint status report five court days in advance of the hearing.

Defendants Monsters Ink, LLC (“Monsters”) and Philip Kim (“Kim”) (collectively, “Defendants”) move for an order compelling arbitration of all claims asserted by Plaintiff Dominie Lee (“Lee”) (“Plaintiff”) in this action and staying the action pending completion of arbitration.  (Notice of Motion, pgs. 1-2; C.C.P. §1281.2(d).)

Defendants Movieland Classics, LLC’s, Cosmic-Con, LLC’s, and American Gothic Press LLC’s (collectively, “Joinder Defendants”) filed a joinder in support of Defendants’ motion to compel arbitration of Plaintiff’s claims and submit that Plaintiff’s claims should be stayed pending the outcome of the arbitrable claims.  (Joinder, pg. 1.)

Defendants argue Plaintiff’s opposition is untimely pursuant to C.C.P. §1290.6.  (Reply, pg. 1.)  However, it is not clear that the C.C.P. §1290.6 timing requirement applies to a motion to compel arbitration on a case that has already been filed.  (Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 613.)  Rather, the timing requirement follows the general motions statute, and as such, Plaintiff’s opposition is timely.  (Id.; C.C.P. §1005(b).) 

“Even if the petition timeline applied here, Code of Civil Procedure section 1290.6 specifically allows a court to extend the time for filing an opposition for good cause, and reviewing courts have long held trial courts are authorized to consider late-filed opposition papers for good cause if there is no undue prejudice to the moving party. [Citations]  The circumstances surrounding an untimely opposition to a petition or motion to compel arbitration should be viewed under ‘the strong policy of the law favoring the disposition of cases on the merits . . . .’ [Citation]”  (Correia, 32 Cal.App.5th at pg. 613.)

Background

On March 25, 2022, Plaintiff filed the instant action for breach of contract, various violations of the Labor Code, and unfair competition under the Business and Professions Code.  Defendants filed the instant motion to compel arbitration on June 2, 2022.  Joinder Defendants filed their joinder on June 2, 2022.  Plaintiff filed her opposition on January 23, 2023.  Defendants filed their reply on January 27, 2023. 

On February 3, 2023, the matter for this motion was heard and argued.  The Court continued the hearing to February 27, 2023, and ordered parties to file supplemental briefings, with Plaintiff’s brief to be filed by February 10, 2023, and Defendant’s response to be filed by February 17, 2023.  On February 10, 2023, Plaintiff filed a supplemental opposition.  On February 17, 2023, Defendants filed a supplemental reply.

In deciding a motion to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement.  (See Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  [Citation] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.  [Citation] No jury trial is available for a petition to compel arbitration. [Citation]”  (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972; see also Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F. 3d 1126, 1130 (“The court’s role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. [Citations]”).  The party opposing the petition to compel arbitration bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) 

A.  Arbitration Agreement

Defendants proved the existence of an arbitration agreement with Plaintiff.  Defendants submitted evidence that on January 7, 2013, Plaintiff executed the Monsters Ink, LLC, Operating Agreement (“Agreement”) that contained a valid and enforceable arbitration clause (“Arbitration Agreement”).  (Decl. of Kim ¶6, Exh. 1 §9.2.)  The Arbitration Agreement provides:

(a) In any dispute over the provisions of this Agreement and in other disputes among the Members, if the Members cannot resolve the dispute to their mutual satisfaction, the matter shall be submitted to mediation. The terms and procedure for mediation shall be arranged by the parties to the dispute.

(b) If good-faith mediation of a dispute proves impossible or if an agreed-upon mediation outcome cannot be obtained by the Members who are parties to the dispute, the dispute may be submitted to arbitration in accordance with the rules of the American Arbitration Association. Any party may commence arbitration of the dispute by sending a written request for arbitration to all other parties to the dispute. The request shall state the nature of the dispute to be resolved by arbitration, and, if all parties to the dispute agree to arbitration, arbitration shall be commenced as soon as practical after such parties receive a copy of the written request.

(c) All parties shall initially share the cost of arbitration, but the prevailing party or parties may be awarded attorney fees, costs and other expenses of arbitration. All arbitration decisions shall be final, binding and conclusive on all the parties to arbitration, and legal judgment may be entered based upon such decision in accordance with applicable law in any court having jurisdiction to do so.

(Decl. of Kim, Exh. 1 §9.2.)

Plaintiff does not dispute that she signed the Agreement as a member of Monsters Ink, LLC, that the Federal Arbitration Act (“FAA”) governs the Arbitration Agreement, that Defendants have not waived its right to arbitrate this matter, or that Defendants have not fulfilled the condition precedent to first engage in Mediation before moving to arbitrate.  (See Opposition.)

Plaintiff argues the Agreement does not apply to her because (1) the Agreement applies to members of a limited liability company, (2) Plaintiff’s wage and hour claims are that of an employee, and (3) Plaintiff did not sign any agreement to submit her employment claims to binding arbitration.  (Opposition, pg. 3.)  Further, Plaintiff argues the dispute resolution clause in the Agreement states that arbitration is permissive and not mandatory.  (Opposition, pg. 2.)  Plaintiff did not submit an affidavit in support of her arguments nor cite law in support of her positions in opposition.  However, the Agreement identifies Plaintiff as a “member” not an “employee” and one of the initial elected Managers.  (See Decl. of Kim, Exh. 1 § 2.1, §4.1.)  Moreover, the use of the phrase “may be submitted to arbitration,” should be interpreted to require arbitration rather than merely permitting it  and the permissive language  means that a party who did not want arbitration has the option to abandon the claim.  (See Erickson v. Aetna Health Plans of California, Inc. (1999) 71 Cal. App. 4th 646, 649.)

Based on the foregoing, Defendants have proved the existence of a valid arbitration agreement that is enforceable by Defendants.

B.   Covered Claims

Plaintiff does not dispute that her claims against Defendants would be covered by the Arbitration Agreement.  (See Opposition.)  Plaintiff’s claims involve a “dispute” with the other members who executed the Agreement in the  and turn on interpretating the “provisions of the Agreement.”  The Agreement sets forth the manner for distributing profits and assigning losses to members.  (See Decl. of Kim, Exh. 1 §§3.1-3.2.)  The Agreement sets forth the rights of members, including their right to compensation related to management of the LLC.  (See Decl. of Kim, Exh. 1 §§4.1-5.2.)  Plaintiff agreed in the Agreement that Defendant Kim owns all of the identified intellectual property assets in this case.  (See Decl. of Kim, Exh. 1 §8.1 [“OWNERSHIP OF ASSETS. The Ownership of the intellectual and other property which shall be used in connection with the business of the Company is and shall continue to be owned by Philip Y. Kim . . ..”]; see also Exh. 1 §1.5 [discussing ownership of IP and related assets].)  The Agreement contains an integration clause, and Plaintiff agreed that the agreement “represents the entire agreement among the Members of this LLC, and it shall not be amended, modified, or replaced except by a written instrument executed by all of the parties to this Agreement who are current Members of this LLC after the adoption of this Agreement.”  (See Decl. of Kim, Exh. 1 §9.3.)  Plaintiff’s claims are a “dispute” among the members of the LLC and necessarily involve interpreting the terms of the Agreement, making the dispute arbitrable.  

Based on the foregoing, Defendant met its burden of establishing the Agreement covers the causes of action asserted in Plaintiff’s complaint.

C.   “Shall” v. “May”

In Plaintiff’s supplemental opposition, Plaintiff argues that the Operative Clause does not mandate arbitration because it uses the word “may” rather than “shall.”  (Supp. Opp. at pgs. 2-4.)  Plaintiff points to the language in Section 9.2 Dispute Resolution in the Operating Agreement, which states in relevant part: “the dispute may be submitted to arbitration…”  (Decl. of Kim, Exh. 1 §9.2(b) (emphasis added).)  Plaintiff cites to case authority, interpreting the word “may” as discretionary and “shall” as mandatory.  Thus, Plaintiff requests the Court construe this language to mean that there is no binding arbitration and deny the instant motion.

In Defendants’ supplemental reply, Defendants argue that the resolution of this petition does not turn on distinguishing the words “shall” and “may” in a vacuum.  When read as a whole, Defendants contend that the dispute resolution section mandates the mediation of disputes, and if a party is dissatisfied with the mediation, the party may then pursue claims in arbitration.  (Supp. Reply. at pgs. 1-2.) 

The Court agrees with Defendants’ interpretation since the language that Plaintiff points to is within the larger section concerning Dispute Resolution.  Although Plaintiff cites to authority explaining what “may” and “shall” mean, the cases do not concern courts’ interpretation of the words within the context of arbitration agreements.  Section 9.2 in the Operative Agreement is clear that covered disputes be mediated since it states, “the matter shall be submitted to mediation.”  (Decl. of Kim, Exh. 1 §9.2(a) (emphasis added).)  The next section starts with the word “if,” which indicates that parties have the option of pursuing arbitration as a further measure in the event that “good-faith mediation proves impossible or if an agreed-upon mediation outcome cannot be obtained…”  (Decl. of Kim, Exh. 1 §9.2(b).)  Thus, the “may” language refers to a party’s ability to continue the dispute by bringing an arbitration claim and binding the remaining parties to this alternative process accordingly. 

Thus, the Operative Clause requires all parties to submit to a dispute resolution process, including arbitration which a party may opt to elect.

D.   All Parties Agree to Arbitration

In the supplemental opposition, Plaintiff argues that the dispute resolution clause contains a second requirement prior to arbitration in which the dispute may only be submitted to arbitration in the event that all parties agree to arbitration.  (Supp. Opp. at pgs. 4-6.)  Plaintiff points to the word “if,” in the clause, “The request shall state the nature of the dispute to be resolved by arbitration, and, if all parties to the dispute agree to arbitration…,” claiming that this presents a second hurdle to compel arbitration.  (Decl. of Kim, Exh. 1 §9.2(b) (emphasis added).) 

In the supplemental reply, Defendants contend that the clause which Plaintiff points out is intended to affect the timing of arbitration commencement rather than giving a member the option of not arbitrating a dispute.  (Supp. Reply. at p. 6:2-11.)  Defendants argue that if there is a dispute concerning arbitrability, then the “arbitration shall [not] be commenced as soon as practical” and a determination will need to be made concerning the claims and whether they are arbitrable.  (Decl. of Kim, Exh. 1 §9.2(b).)

The Court agrees with Defendants’ interpretation.  Considering the clause in light of the dispute resolution section as a whole, it appears that the parties agreed to resolving disputes through mediation and arbitration rather than any court proceedings.  Plaintiff’s interpretation of the “if” clause would contradict the plain meaning of the previous sentence which states, “[a]ny party may commence arbitration of the dispute by sending a written request for arbitration to all other parties to the dispute.”  (Decl. of Kim, Exh. 1 §9.2(b).)  If Plaintiff’s interpretation were correct in requiring all parties to agree to arbitration, then the previous sentence would lose its meaning in that any party could not commence arbitration by sending a written request.  The phrase is better construed as intending the time of the arbitration if there is not dispute that the claims are arbitrable. It is more likely that the agreement to arbitrate requirement only concerns the timing of arbitration commencement as Defendants contend, especially given the fact that the clause includes the words “as soon as practical,” which indicates a timing component rather than whether arbitration is voluntary.

Thus, the Operative Clause allows any party to bring claims to arbitration by sending a written request to all parties and does not require that all parties agree to arbitration in order to commence arbitration.

E.    Conclusion

Defendants’ motion to compel arbitration is granted.  The case is stayed pending arbitration.

Dated:  February 27, 2023

Hon. Monica Bachner

Judge of the Superior Court