Judge Randolph M. Hammock, Case Number: 25STCV00211, Date: 2025-04-03 Tentative Ruling

Judge: Randolph M. Hammock, Case: 25STCV00211, Date: 2025-04-03 Tentative Ruling

Plaintiff Matthew Holloway brings this action individually and derivatively on behalf of Bad Manners LLC against Defendants Michelle Davis and Kyria Albanes. Plaintiff alleges he and Defendant Davis are co-members of Bad Manners LLC. Plaintiff alleges Defendant Davis, with the assistance of Defendant Albanes, misappropriated company property.

“Under the FAA, there is a strong policy favoring arbitration. [Citations.] ‘The overarching purpose of the FAA is to ensure the enforcement of arbitration agreements according to their terms ....’ [Citation.] Therefore, ‘[a]rbitration is a matter of consent ....’ [Citations.] [¶] ‘ “Although the FAA preempts any state law that stands as an obstacle to its objective of enforcing arbitration agreements according to their terms, ... we apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” ’ [Citations.]” (Barrera v. Apple Am. Grp. LLC (2023) 95 Cal. App. 5th 63, 76.) It is settled that “[u]nder both California and federal law, arbitration is strongly favored and any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” (Balandran v. Labor Ready, Inc. (2004) 124 Cal.App.4th 1522, 1527.)

California also has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Id.) An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.] (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353). “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

“[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.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, 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 accordance with the order to arbitrate or until such earlier time as the court specifies. . . .” (CCP § 1281.4.)

Defendants move to compel arbitration. Defendants have the initial burden of producing “prima facie evidence of a written agreement to arbitrate the controversy.” (Gamboa v. Ne. Cmty. Clinic (2021) 72 Cal. App. 5th 158, 165.) “[I]t is not necessary to follow the normal procedures of document authentication.” (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal. App. 4th 215, 218.)

In the event of any dispute, claim or controversy among the parties arising out of or relating to this Agreement or the Company whether in contract, tort, equity or otherwise, and whether relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, such dispute, claim or controversy shall be resolved by and through an arbitration proceeding to be conducted under the auspices and the commercial arbitration rules of the American Arbitration Association (or any like organization successor thereto) by a single neutral arbitrator at Los Angeles, California…

In opposition, Plaintiff does not dispute that the Arbitration Provision in the Operating Agreement is valid, binding, and covers the dispute here. (See Opp. 4: 24-25 [“Plaintiff does not dispute that a valid arbitration provision was included in the Operating Agreement which was entered into between Plaintiff Matthew Holloway and Defendant Davis”].) Instead, Plaintiff only contends that Defendant Albanes cannot compel arbitration because she was not a signatory of the Operating Agreement.

Defendants seem to suggest, at first, that Defendant Albanes can compel arbitration be merely consenting to it. Not so. Generally, a party must be a signatory to the contract to enforce the arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236 (JSM).)

Although not expressly stated in the motion, Defendants then appear to rely on the principle of equitable estoppel as another basis to compel arbitration against all Defendants. (See Mtn. 9: 10-13.) The Court of Appeal has held that under the principle of equitable estoppel, “ ‘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.’ [Citation.]” (Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 786; Rowe v. Exline (2007) 153 Cal. App. 4th 1276, 1287 citing Turtle Ridge, 140 Cal.App.4th at 833 [“a signatory plaintiff who sues on a written contract containing an arbitration clause may be estopped from denying arbitration if he sues nonsignatories as related or affiliated persons with the signatory entity”].)

Here, Plaintiff alleges that “Defendants Davis and Albanes raided Company headquarters, tampered with security cameras and stole Company property including, but not limited to podcast equipment, cameras, kitchen equipment, appliances, props, electronics, production equipment and furniture.” (Compl. ¶ 16.) They then used these materials to run a competing business. (Id. ¶ 17.) Defendant Davis also posted a newsletter on her Substack that falsely accused Plaintiff of theft and financial malfeasance; Defendant Albanes then shared the newsletter on her Substack. (Id.) Plaintiff alleges Defendant Albanes “assisted and colluded with Davis in both her theft of assets from the Company and the promotion of a competing business to the Company subscribers, among other things” and is “actively aiding and abetting Defendant Davis’ efforts to unlawfully divert subscribers, customers and revenue from the Company…” (Id. ¶¶ 41, 44.) Thus, Plaintiff asserts causes of action against Defendant Albanes for conversion, unfair competition, misappropriation of trade secrets, intentional interference with prospective economic advantage, civil conspiracy, aiding and abetting, and false light. Defendant Albanes is not named by herself in any cause of action—she is grouped with Defendant Davis in each.

Here, considering these allegations, all of the conduct alleged against Defendant Albanes is “part and parcel” with that of Defendant Davis. Albanes allegedly “assisted,” “aided and abetted,” “colluded,” or “conspired” with Davis to harm Plaintiff. These allegations against Albanes, just as they are against Davis, are “intimately founded in and intertwined” with the underlying Operating Agreement. (Garcia, supra, 11 Cal.App.5th at 786.) Therefore, Defendant Albanes can invoke the arbitration provision in the Operating Agreement under the doctrine of equitable estoppel.

Finally, it is Plaintiff’s position that if arbitration proceeds against both Defendants, then the costs should be split three ways (between Plaintiff, Davis, and Albanes.) Defendants counter that the costs need only be split two ways (between Plaintiff and Davis.)

The Operating Agreement provides the costs of the arbitration “shall initially be born equally by the parties, but the ultimate costs of the arbitration proceeding and any proceeding in court to confirm any arbitration award, as applicable (including each party's attorneys' fees and costs), shall be borne by the unsuccessful party or, at the discretion of the arbitrator, may be prorated between the parties in such proportion as the arbitrator determines to be equitable and shall be awarded as part of the arbitrators’ award.” (Rowe Decl. ¶ 5, Exh. D, ¶ 17(b).)

Plaintiff has not provided any authorities holding that a party who invokes an arbitration agreement by equitable estoppel must share in the costs of arbitration. Be that as it may, this court need not address that issue now, as this would appear to be an issue for the arbitrator. The Arbitration Provision expressly delegates to the arbitrator the sole authority to determine “the meaning, interpretation, effect, validity, performance or enforcement of” the Agreement.” (Id.)

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.