Efund Capital Partners v. Pless

• Decision Date: 21 May 2007
• Docket Number: No. B193575.,B193575.
• Citation: 150 Cal.App.4th 1311,59 Cal.Rptr.3d 340
• Court: California Court of Appeals Court of Appeals
• Parties: EFUND CAPITAL PARTNERS, Plaintiff and Respondent, v. Robert PLESS et al., Defendants and Appellants.

59 Cal.Rptr.3d 340

150 Cal.App.4th 1311

EFUND CAPITAL PARTNERS, Plaintiff and Respondent, v. Robert PLESS et al., Defendants and Appellants.

No. B193575.

Court of Appeal, Second District, Division 5.

May 21, 2007.

Quintana Law Group, Andres F. Quintana, John M. Houkom and Daniel J. Taylor, for Defendants and Appellants.

Osher & Osher, Jeremy J. Osher, Venice; Law Offices of Boren. Luftman and Stephen Z. Boren, Los Angeles, for Plaintiff and Respondent.

TURNER, P.J.

I. INTRODUCTION

Defendants, Robert Pless, Frank Mayor, David Allegra, Janice Doyle, and AIM Group, LLC (AIM), appeal from an August 28, 2006 order denying their motion to compel arbitration. The trial court denied the motion to compel arbitration explicitly relying on two decisions of the Ninth Circuit, Court of Appeals—Tracer Research Corp. v. National Environmental Services Co. (9th Cir.1994) 42 F.3d 1292, 1294-1295, and Mediterranean Enterprises, Inc. v. Ssangyong Corp. (9th Cir. 1983) 708 F.2d 1458, 1461-1464—which now constitute a distinctly minority analysis. We conclude that under California law, as well as the views of all of the circuits which have considered the arbitrability issue at hand, that the motion to compel arbitration should have been granted. Thus, we reverse the order denying the motion to compel arbitration. But the trial court did not rule on plaintiff EFund Capital Partners's waiver and standing contentions. We accede to the parties' request that, upon issuance of the remittitur, the trial court is to rule on plaintiff waiver and standing contentions.

II. BACKGROUND

A. The Second Amended Complaint

This is in part a shareholder derivative suit. Plaintiff sues on its own behalf, and derivatively on behalf of nominal defendant RAP Technologies, Inc., doing business as Loan Vibe (RAP Technologies). Plaintiff is "a private equity firm" that finances and restructures companies. The nominal defendant, RAP Technologies, develops and distributes computer software. RAP Technologies's shareholders include: plaintiff, 42 percent; Mr. Pless, 20 percent; Mr. Allegra, 17.5 percent; and Mr. Mayor, 14 percent.

The operative pleading is a second amended complaint dated May 12, 2006. Plaintiff alleges as follows. Mr. Pless developed a mortgage presentation software program, Loan Vibe, designed for use in the mortgage loan industry. RAP Technologies was incorporated in January 2004 to develop the Loan Vibe software program. The Loan Vibe software program is RAP Technologies's primary asset. Mr. Pless became RAP Technologies's chief executive officer and director. Mr. Mayor and Mr. Allegra were the primary investors in RAP Technologies at the time of its formation. Mr. Mayor is also the managing member of defendant AIM, which is in the business of Internet Web hosting. Mr. Pless, Mr. Mayor, and Mr. Allegra held themselves out to the public as members of RAP Technologies's board of directors. Ms. Doyle had been a RAP Technologies employee and then an independent contractor. She is currently working for Mr. Pless, Mr. Mayor, and AIM.

Shortly after RAP Technologies incorporated, Mr. Pless, Mr. Mayor, and Mr. Allegra found themselves in need of capital to develop the Loan Vibe software program. They formed a plan to fraudulently induce third parties to invest in RAP Technologies. They intended to use the funds to exploit the Loan Vibe software program for their own financial gain to the exclusion of their investors. Mr. Pless approached plaintiff. (The second amended complaint does not specify the persons employed by plaintiff who were approached by Mr. Pless.) Mr. Pless represented to plaintiff that: the Loan Vibe software program had great economic potential; any investor in RAP Technologies would become a long-term partner in its growth; in exchange for plaintiffs financial backing, it would have the right to appoint directors to RAP Technologies's board; further, plaintiff would be entitled to participate in RAP Technologies's management and control, including efforts to develop, market, and exploit the Loan Vibe software program. Plaintiff, in reasonable reliance on the foregoing representations, agreed to invest in RAP Technologies.

On April 15, 2004, plaintiff entered into a contract, the "strategic relationship agreement," with RAP Technologies. The strategic relationship agreement sets forth the parties' obligations to each other. The purpose of the agreement was to initiate and further a working relationship between plaintiff and RAP Technologies. Plaintiff was to provide RAP Technologies with capital and restructuring services. In return, plaintiff would receive an equity interest in RAP Technologies. RAP Technologies was to, among other things, provide to plaintiff a copy of the Loan Vibe software program including codes and trade secrets. Further, RAP Technologies was obligated to provide to plaintiff a full list of the investors in the Loan Vibe software program. The strategic relationship agreement stated in part, "Robert Pless agrees to provide any and all services required to fulfill any agreement that is signed on behalf of RAP [Technologies] and any other duties that may arise in the course of business[.]" Mr. Pless signed the strategic relationship agreement in the following manner: "RAP TECHNOLOGIES, INC. [¶] [¶] signature] [¶] By: Robert Pless [¶] Title: President & CEO." Plaintiff invested more than $500,000 in RAP Technologies. RAP Technologies was obligated to repay plaintiff with interest.

In or around April 2004, plaintiff named its managing member, Mr. Evans, and its secretary, Mr. Conrad, to RAP Technologies's board of directors. Mr. Pless served as the third RAP Technologies director. By agreement among the parties, RAP Technologies's directors were Mr. Conrad, Mr. Evans, and Mr. Pless. Also on April 15, 2004—the date the parties entered into the strategic relationship agreement— RAP Technologies entered into a contract with defendant, Integrated Tech, Inc. (Integrated). Integrated is not a party to this appeal. Integrated agreed to provide program development, service, training, and general computer programming support work for the Loan Vibe software program.

On November 7, 2005, plaintiff learned Mr. Pless had misappropriated funds from RAP Technologies. On or about November 11, 2005, Mr. Evans and Mr. Conrad, as a majority of RAP Technologies's directors, terminated Mr. Pless as chief executive officer and director. Also, on November 11, 2005, Mr. Evans notified Integrated that Mr. Pless should have no access to RAP Technologies's property. As noted, Integrated and RAP Technologies had an agreement to develop the Loan Vibe software program. Integrated had possession of RAP Technologies's property. On November 24, 2005, Mr. Evans and Mr. Conrad demanded Mr. Pless return all RAP Technologies property in his control. As of the date of the filing of the second amended complaint, Mr. Pless had not complied with the demands of Mr. Conrad and Mr. Evans. On or about November 30, 2005, Mr. Mayor agreed to provide Mr. Pless with $8,000. The $8,000 was to allow Mr. Pless to meet his personal obligations. In return, Mr. Pless agreed to divert payments from RAP Technologies's clients to AIM. As noted above, Mr. Mayor is the managing member of AIM. Thereafter, Mr. Pless caused funds due to RAP Technologies to be diverted to AIM. Further, Integrated has refused to grant RAP Technologies or plaintiff access to the Loan Vibe software program. Instead, Integrated has continued to provide defendants with "program development, service, training, and general programming support work" for the Loan Vibe software program. According to the second amended complaint: defendants had entered into additional Web hosting agreements with other entities, thereby diverting the Loan Vibe software program; these entities refused plaintiff access to the Loan Vibe software program; defendants have diverted the Loan Vibe software program to their own use; defendants have refused to provide RAP Technologies with access to the Loan Vibe software program; defendants are exploiting the"' Loan Vibe software program for their own financial gain to the detriment of plaintiff and RAP Technologies; and plaintiff was contractually entitled to a return on the investment in RAP Technologies resulting from the April 15, 2004 strategic relationship agreement. However, RAP Technologies has not paid interest to plaintiff and does not have the ability to do so.

With respect to the capacity in which the defendants acted, the second amended complaint alleges: "At the time [Mr. Pless, Mr. Mayor, and Mr. Allegra] conspired to defraud [plaintiff] ... these Defendants were acting as the Officers and Directors of RAP [Technologies] ... [¶] Moreover, at the time that [Mr. Pless], with the assistance of and in concert with Defendants [Mr. Mayor, AIM, and Mr. Allegra] converted RAP [Technologies's] money and property, including the [Loan Vibe] Program, [Mr. Pless] was both the Chief Executive Officer and a Director of RAP [Technologies]." In addition, plaintiff alleges: "At all times mentioned herein, [defendants], and each of them, were the agent, employee and representative of each and every other [defendant], and in doing the things hereinafter alleged, each was acting within the course and scope of such agency, service and representation and directed, aided and abetted, authorized or ratified each and every unlawful act and/or omission hereinafter alleged."

Plaintiffs second amended complaint asserts causes of action for fraud, conspiracy to defraud, negligent misrepresentation, fiduciary duty breach, intentional interference with contractual relations, conversion, and declaratory relief. More specifically, it is alleged Mr. Pless either fraudulently or negligently induced plaintiff to invest in RAP Technologies. Plaintiff further alleges Mr. Pless, Mr. Mayor, and Mr. Allegra, as RAP Technologies's directors, allegedly breached their fiduciary duties by...