Brown v. Ye
| Docket Number | A165960 |
| Decision Date | 07 June 2023 |
| Parties | MILO BROWN, Plaintiff and Respondent, v. ALBERT YE et al., Defendants and Appellants |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. 22CV009060
Plaintiff Milo Brown filed a lawsuit alleging that his terminally ill father entered into a commercial cannabis business relationship with defendants Albert and Jonathan Ye. Brown alleges that the Ye's subsequently appropriated and diverted income, revenue, and corporate assets from that relationship to their other businesses.
The Ye's filed a petition to compel arbitration of Brown's dispute based on an arbitration clause in an incubation contract, necessary to obtain permitting for a commercial cannabis operation, purportedly signed by his father. The trial court denied the petition, concluding that Brown's dispute does not arise from that contract. The Ye's appeal. We affirm.
Brown filed a complaint as an individual and on behalf of Alyer Distribution, Inc. (Alyer Distribution) against Albert and Jonathan Ye and three companies under their control: Alyer Bioceuticals, Inc. (Alyer Bioceuticals), Alyer Laboratories Inc., and Alyer Management, Inc. Brown alleges that he and the Ye's formed and organized Alyer Distribution as a corporation in February 2019. Brown alleges that Albert Ye "purports" to be the chief executive officer, and Jonathan Ye is the chief financial officer, of Alyer Distribution.
Brown's complaint asserts four causes of action: (1) breach of fiduciary duty; (2) fraud; (3) financial elder abuse; and (4) violation of California's Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17200 et seq.). Brown asserts the breach of fiduciary duty and fraud claims against the Ye's. The financial elder abuse and UCL claims are asserted against the Ye's, as well as the three defendant corporations under their control.
Brown alleges that his father "was ill with terminal cancer and limited in his understanding and cognitive ability when he entered into the business relationship with Defendants and each of the[m] knew of such illness and the fact that [Brown's father] was physically and mentally weak and susceptible to suggestion and influence." During the summer of 2019, Brown and his father had "several discussions" with the Ye's. According to Brown, the Ye's represented that Brown would own a majority of the issued stock of Alyer Distribution, and that the Ye's would manage Alyer Distribution "in good faith" and "with the best interests" of Brown and his father. Believing these representations, Brown alleges, he and his father decided to enter into a business relationship with the Ye's.
Brown's father died in July 2020. Under the financial elder abuse cause of action, Brown alleges that he is the "Successor in Interest" of his father.
Brown's complaint alleges that the Ye's "have taken, withdrawn, and appropriated income and revenue in undisclosed amounts without authorization or the right to do so." Brown alleges that income and revenue from Alyer Distribution "has been diverted and wrongfully attributed and reported as income and revenue of" the Ye's three other companies. He also alleges that the Ye's have not held shareholder meetings, adopted bylaws, or maintained business records for Alyer Distribution.
Brown also alleges that, from 2020 to 2022, the Ye's appropriated and transferred the "premises, intellectual property, trade and service marks, accounts receivable, good will and other corporate assets" of Alyer Distribution without consideration. Brown alleges that, from 2021 to 2022, the Ye's "caused and allowed at least one judgment by default to be entered" and "a notice regulatory compliance [sic] to be recorded" against Alyer Distribution.
The Ye's filed a petition to compel arbitration on the grounds that a written agreement to arbitrate covers Brown's claims. They offered as evidence an undated three-page document entitled "Incubation Contract for Commercial Cannabis Permitting" (incubation contract), which we discuss below.
The
incubation contract forms the foundation of a business
relationship with Brown's father that would create a
distribution company allowing the Ye's to take advantage
of regulations created by the City of Oakland intended to
promote equity in the cannabis industry. Directly below its
title, the
incubation contract references Oakland Municipal Code
chapters 5.80 and 5.81. Chapter 5.80 relates to medical and
adult-use cannabis dispensary permits. It includes the
"Equity Permit Program," enacted by the Oakland
City Council in 2017 to combat disparities and minimize
barriers of entry into the industry. (Press Release, City of
Oakland, City of Oakland Releases Medical Cannabis Permit
Applications (May 23, 2017)
The incubation contract identifies Alyer Bioceuticals as the general applicant and Brown's father as the equity applicant. It also lists Alyer Distribution as "the new corporate entity to be formed jointly by the General Applicant and Equity Applicant." It provides that the general applicant and equity applicant
The incubation contract states that Alyer Bioceuticals "has secured a site for operation of Alyer Distribution" in a space of 1,075 square feet through a rental agreement priced at $2,775 per month, and that Alyer Bioceuticals "shall pay rent" for a period of three years. It provides that the contract will terminate after the three-year incubation period, or earlier if the equity applicant's commercial cannabis permit is denied, suspended, or revoked.
The final clause of the incubation contract reads,
The incubation contract is not dated. With their petition to compel arbitration, the Ye's attached a copy of the incubation contract bearing two signatures-one with the name "Jonathan Ye" as general applicant, and the other with the name "John Brown" as equity applicant.
Brown opposed the petition to compel arbitration. He argued that the arbitration provision of the incubation contract did not cover his dispute because his claims were based on events that occurred after the formation of Alyer Distribution. Brown also argued that he could not be compelled to arbitrate because he himself was not a signatory to the incubation contract, his father's signature was a forgery, and the incubation contract was unconscionable.
The trial court denied the petition to compel arbitration. The court explained: Because the dispute was not covered by the incubation contract, the trial court explained that it need not reach Brown's other argument that his father's signature was a forgery.
The Ye's appeal.
The California Arbitration Act (Code Civ. Proc., § 1280 et seq.)[1] sets forth "a comprehensive statutory scheme regulating private arbitration in this state." (Moncharsh v. Heily &Blase (1992) 3 Cal.4th 1 9.) Under section 1281.2 of the California Arbitration Act, a party may petition the court to compel another party to arbitrate a controversy. The trial court is required to order arbitration "if it determines that an agreement to arbitrate the controversy exists," subject to certain enumerated exceptions. (§ 1281.2.) When the court's determination rests solely on a decision of law, as it did here, we review the order de novo. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890 (Aanderud); Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425.) We turn first to the trial court's authority to decide whether Brown's dispute was subject to arbitration.
In their briefing on appeal, the Ye's argued that the question of whether Brown's claims are...
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