Judge: Theresa M. Traber, Case: 23STCV30966, Date: 2024-10-09 Tentative Ruling
Case Number: 23STCV30966 Hearing Date: October 9, 2024 Dept: 47
Tentative Ruling
Judge Theresa M. Traber, Department 47
HEARING DATE: October 9, 2024 TRIAL
DATE: NOT SET
CASE: Creative Food Solutions, LLC, et al. v.
Stradling Yocca Carlson & Rauth, et al.
CASE NO.: 23STCV30966 
MOTION
TO COMPEL ARBITRATION
MOVING PARTY: Defendants Stradling Yocca Carlson & Routh, and
Ian Smith
RESPONDING PARTY(S): Plaintiffs Creative
Food Solutions LLC; Ilia Mitelman, and David Noy
CASE
HISTORY:
·
12/19/23: Complaint filed.
·
02/26/24: First Amended Complaint filed.
STATEMENT
OF MATERIAL FACTS AND/OR PROCEEDINGS:
This is a legal malpractice action. Plaintiffs allege that Defendant committed
malpractice by improperly drafting a contract on Plaintiffs’ behalf and failing
to properly advise Plaintiffs of the meaning of its terms.
Defendant moves to compel
arbitration of this dispute.
TENTATIVE RULING:
Defendants’ Motion to Compel
Arbitration is GRANTED.
This
action is STAYED pending resolution of binding arbitration between the parties.
The
Court schedules a Status Conference Re: Arbitration for Thursday, October 9,
2025, at 8:30 AM.
//
DISCUSSION:
Defendant moves to compel
arbitration of this dispute.
Existence of an Arbitration Agreement
Under California law, arbitration
agreements are valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th
728, 741 (overruled on other grounds by
Le Francois v. Goel (2005) 35 Cal.4th 1094).) A party petitioning to compel
arbitration has the burden of establishing the existence of a valid agreement
to arbitrate, and the party opposing the petition has the burden of proving, by
a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court
(1998) 62 Cal.App.4th 348, 356-57.)
However, as to the burden of production,
rather than persuasion, courts have articulated a three-step burden shifting
process:
First, the moving party bears the
burden of producing “prima facie evidence of a written agreement to arbitrate
the controversy.” [citation] The moving party “can meet its initial burden by
attaching to the [motion or] petition a copy of the arbitration agreement
purporting to bear the [opposing party’s] signature.” [citation] Alternatively,
the moving party can meet its burden by setting forth the agreement’s
provisions in the motion. [citations] For this step, “it is not necessary to
follow the normal procedures of document authentication.” [citation] If the
moving party meets its initial prima facie burden and the opposing party does
not dispute the existence of the arbitration agreement, then nothing more is
required for the moving party to meet its burden of persuasion.
If the moving party meets its initial
prima facie burden and the opposing party disputes the agreement, then in the
second step, the opposing party bears the burden of producing evidence to
challenge the authenticity of the agreement. [citation] The opposing party can
do this in several ways. For example, the opposing party may testify under oath
or declare under penalty of perjury that the party never saw or does not
remember seeing the agreement, or that the party never signed or does not
remember signing the agreement. [citations]
If the opposing party meets its burden
of producing evidence, then in the third step, the moving party must establish
with admissible evidence a valid arbitration agreement between the parties. The
burden of proving the agreement by a preponderance of the evidence remains with
the moving party. [citation].
(Gamboa v. Northeast Community Clinic (2021) 72
Cal.App.5th 158, 165-66.) An electronic record or signature is attributable to
a person if it was the act of the person. (Civ. Code § 1633.9(a).) The act of
the person may be shown in any manner. (Id.) As described by the Court
of Appeal, “the burden of authenticating an electronic signature is not great.”
(Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 844.)
Defendants
move to compel arbitration based on an arbitration provision in an engagement
agreement for legal services between Defendant Stradling Yocca Carlson &
Routh, a law firm, and Non-Party Venture One Group, Inc. (Declaration of Ian
Smith ISO Mot. Exh. 1 § 12 [Arbitration provision].) The Engagement Letter,
dated December 18, 2018, is addressed to “Venture One Group, Inc., 149 S.
Barrington Ave, Ste 189, Los Angeles CA 90049” for the attention of Ilia
Mittelman. (Id.) Ilia Mittelman is a Plaintiff in this action, and
signed the consent form on page six of the Engagement Letter on December 19,
2018 as CEO of Venture One Group, Inc. (Smith Decl. Exh. 1. p.6.) Defendants
contend that Plaintiffs Mittelman and Noy are principals and equal co-owners of
both Creative Food Solutions, which is also a Plaintiff, and Venture One Group,
which is not. (Smith Decl. ¶¶ 4-6.) Defendants contend that Venture One Group
is so intertwined with these parties and with the transactions which were the
focus of the representation at issue in this case that the Engagement Letter
should be construed as binding Plaintiffs to its terms. Section 2 of the
Engagement Letter, titled “Identity of Client,” expressly states:
We represent only
Venture One Group, Inc. in this matter. We do not represent any other entity or
person, including any other company, partnership, organization, director,
officer, employee, member, shareholder, partner, agent or family member, in
this matter. Any representation by us of such other entity or person will be
established only in a separate written agreement.
(Smith Decl. Exh. 1 § 2.) Defendants concede that the
express language of this section conclusively establishes that the Plaintiffs
in this action are not signatories to the agreement, and, therefore, there is
no written agreement to arbitrate between these parties. Nevertheless,
Defendants contend that Plaintiffs may be compelled to arbitration under an
equitable estoppel or third-party-beneficiary theory.
Equitable Estoppel
Defendants
first contend that Plaintiffs are equitably estopped from repudiating the
arbitration clause because they have asserted a claim for professional
negligence which is grounded in the Engagement Letter.
The doctrine of equitable estoppel typically applies to bind a signatory plaintiff
to arbitrate claims against a nonsignatory defendant if (1) the
plaintiff relies upon the contract’s terms in asserting claims against the
non-signatory defendant, or those claims are “intimately founded in or
intertwined with” the contract itself, or (2) if the plaintiff alleges
“substantially interdependent and concerted misconduct” by the defendant, where
such allegations of misconduct are “founded in or intimately connected with”
the obligations of the contract. (Goldman
v. KPMG LLP (2009) 173 Cal.App.4th 209, 221.) The rule allowing a
nonsignatory to enforce an arbitration agreement on equitable estoppel grounds
is based on the principle that a party should be precluded “‘from asserting
rights “he otherwise would have had against another” when his own conduct
renders assertion of those rights contrary to equity.’” (Metalclad Corp. v.
Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th
1705, 1713 [Citations omitted].) “So, if
a plaintiff relies on the terms of an agreement to assert his or her claims
against a nonsignatory defendant, the plaintiff may be equitably estopped from
repudiating the arbitration clause of that very agreement. In other words, a
signatory to an agreement with an arbitration clause cannot ‘“have it both
ways”’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory
liable pursuant to duties imposed by the agreement, which contains an
arbitration provision, but, on the other hand, deny arbitration's applicability
because the defendant is a non-signatory.’” (Goldman, supra, at
220 [Citation omitted].) The doctrine of equitable estoppel is “equally
applicable to a nonsignatory plaintiff.” (JSM Tuscany, LLC v. Superior Court
(2011) 193 Cal.App.4th 1222, 1239.)
The First
Amended Complaint alleges:
Plaintiffs hired
Defendants as attorneys to represent them inter alia in connection the
sale of the assets of a co-packing and high-pressure-processing company.
Defendants represented Plaintiffs, as Plaintiffs’ attorneys, throughout the
entire sales process, including the due diligence and documentation of that
sale. That sale was consummated via written agreements, including: a HPP
Services and Co-Packing Agreement and an Asset Purchase Agreement. Defendants
represented Plaintiffs, as their attorneys, in the negotiation, drafting,
preparation, and finalization of those agreements.
(FAC ¶ 11.) Defendants contend that the Engagement Letter is
the written representation agreement which forms the basis of Plaintiffs’
contention that Defendants were hired as their attorneys. Defendants have also
provided a copy of an Asset Purchase Agreement which executes a sale of
Creative Food Solutions LLC’s assets and certain specified liabilities to a
separate buyer, Eselde LLC. (Smith Decl. Exh. 2 p.1.) The parties to the Asset
Purchase Agreement are Plaintiff Mittelman, both in his individual capacity as
equity holder and as a manager of Plaintiff Creative Food Solutions LLC,
Plaintiff Noy, as equity holder, and Eselde LLC, the buyer. (Id. p.49.) The
Asset Purchase Agreement also references a separate HPP Services and Co-Packing
Agreement between Eselde, LLC, on the one hand, and Venture One Group, Inc,
which is expressly described as an affiliate of Creative Food Solutions, LLC. (Id.
p.1, see also Smith Decl. Exh. 3 [HPP Agreement].) Defendants contend that the
Asset Purchase Agreement and the HPP Services and Co-Packing Agreement which
they have provided are the agreements which Plaintiffs allege Defendants to
have prepared on their behalf. Thus, Defendants argue that the Plaintiffs are
seeking to hold Defendants liable for duties imposed by their agreement to
represent Venture and, therefore, may be compelled to arbitration under the
doctrine of equitable estoppel.
In opposition, Plaintiffs first
argue that the equitable estoppel doctrine may not be applied to compel a
non-signatory party to arbitration. Plaintiffs are incorrect. The doctrine of equitable estoppel is
“equally applicable to a nonsignatory plaintiff.” (JSM Tuscany, LLC v.
Superior Court (2011) 193 Cal.App.4th 1222, 1239.) Plaintiffs also contend
that Defendants were hired by Venture in December 2018 to “provide general
corporate advice to Venture One” on matters which “have nothing whatsoever to
do with this lawsuit” and which “predate the issues at issue in this case by about
four years.” (Declaration of Ilia Mittelman ISO Opp. ¶ 12; Declaration of David
Noy ISO Opp. ¶ 11.) As Plaintiffs note, the Engagement Letter is dated December
18, 2018, while the Asset Purchase Agreement is dated December 9, 2022. (Smith
Decl. Exhs. 1-2.) However, Plaintiffs’ conclusions that the representation of
Venture One had “nothing whatsoever” to do with this lawsuit are not
persuasive, unsupported as they are by any further details. Indeed, as Defendants
argue in reply, “general corporate advice” could easily encompass the
preparation of the Asset Purchase and HPP Agreements—documents whose
genuineness and connection to the allegations are not disputed by Plaintiffs.
More surprisingly, Plaintiffs claim that there was no written agreement
between Defendants and these Plaintiffs whatsoever. (Mittelman Decl. ¶¶ 8-10;
Noy Decl. ¶ 7-9.) The Court finds this claim quite troubling: although the
pleadings allege an agreement for legal services, Plaintiffs have not alleged
the form of that agreement. Nor do they contend in their opposition that Defendants
agreed to represent Plaintiffs orally or by implication. In fact, Plaintiffs pointedly
do not offer any explanation in their declarations about how Defendants came to
provide them legal services. By contrast, Defendant Smith expressly states that
the individual Plaintiffs approached him specifically about arranging the sale
of Creative Food Solutions as part of the agreement between Defendants and
Venture. (Smith Decl. ¶ 9.) Given the clear statements and documentary
evidence, including the operative agreements referencing Creative and Venture presented
by Defendants, and the vague, conclusory, and contradictory claims by
Plaintiffs, the Court finds Defendants’ showing to be more persuasive. The
Court therefore finds that Plaintiffs are seeking to hold Defendants liable for
their obligations under the Engagement Letter, and, therefore, that Plaintiffs
are equitably estopped from repudiating its terms.
Scope of
Arbitration Agreement & Applicability of Federal Arbitration Act
“The scope of arbitration is
a matter of agreement between the parties.” (See, e.g., Ericksen, Arbuthnot,
McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312,
323.) “A party can be compelled to arbitrate only those issues it has agreed to
arbitrate.” (Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408,
419.)
The Arbitration clause in the Engagement Letter states:
ANY CLAIM, CONTROVERSY OR DISPUTE BETWEEN OR AMONG
YOU AND US (INCLUDING OUR PROFESSIONALS, EMPLOYEES AND AGENTS), WHETHER IN
TORT, CONTRACT OR OTHERWISE, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
ENGAGEMENT LETTER OR ANY SERVICES THAT WE PROVIDE, SHALL BE SUBMITTED TO
BINDING ARBITRATION. BY AGREEING TO ARBITRATE, YOU AGREE TO WAIVE YOUR RIGHT TO
A JURY TRIAL. The arbitration shall be administered by JAMS pursuant to its
Streamlined Arbitration Rules and Procedures and shall be conducted in Orange
County, California by one neutral arbitrator, who shall be a retired judge or justice.
If the dispute involves our fees or costs, you may elect to submit that portion
of the dispute to non-binding arbitration pursuant to California Business and
Professions Code Sections 6200-6206. Any such non-binding arbitration shall be
administered by the Orange County Bar Association under its Rules of Procedure
for Mandatory Fee Arbitration. If any party rejects the non-binding award, final
resolution of the dispute shall take place pursuant to the binding arbitration
procedure with JAMS described above. Any court having jurisdiction may compel
arbitration, grant provisional remedies in aid of arbitration, and confirm,
vacate or modify the arbitration award. You consent to jurisdiction and venue
in the state and federal courts located in Orange County, California for these purposes.
The prevailing party in any dispute resolved by arbitration shall recover its
costs and attorneys fees from the non-prevailing party, except as otherwise
provided by law. This arbitration agreement shall be interpreted under the
Federal Arbitration Act.
(Smith Decl. Exh. 1. § 12.) In light of the Court’s
conclusion that Plaintiffs are seeking to hold Defendants liable for
obligations created by this Engagement Letter, the Court finds that Plaintiffs’
claims are subject to the arbitration agreement and, by the plain text of the
agreement, the Federal Arbitration Act.
CONCLUSION:
Accordingly,
Defendants’ Motion to Compel Arbitration is GRANTED.
This
action is STAYED pending resolution of binding arbitration between the parties.
The
Court schedules a Status Conference Re: Arbitration for Thursday, October 9,
2025, at 8:30 AM.
Moving
Parties to give notice.
IT IS SO ORDERED.
Dated: October 9,
2024 ___________________________________
Theresa
M. Traber
Judge
of the Superior Court
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order which modifies the tentative ruling in whole or in part.