Howard v. Goldbloom

• Decision Date: 21 December 2018
• Docket Number: A154298
• Citation: 241 Cal.Rptr.3d 743,30 Cal.App.5th 659
• Court: California Court of Appeals Court of Appeals
• Parties: Jeremy HOWARD, Plaintiff and Respondent, v. Anthony GOLDBLOOM, et al., Defendants and Appellants.

30 Cal.App.5th 659

241 Cal.Rptr.3d 743

Jeremy HOWARD, Plaintiff and Respondent,

v.Anthony GOLDBLOOM, et al., Defendants and Appellants.

A154298

Court of Appeal, First District, Division 4, California.

Filed December 21, 2018

Counsel for Appellants: Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, Ignacio E. Salceda, David A. McCarthy, Drew Liming, Taylor & Patchen, LLP, San Francisco, Jonathan A. Patchen, Daniel P. Martin

Counsel for Respondents: Valle Makoff LLP, Jeffrey T. Makoff, Timothy A. Miller

Tucher, J.Defendants appeal an order of the trial court denying their petition to compel arbitration. They contend the claims asserted by plaintiff Jeremy Howard arose out of his employment relationship with Kaggle, Inc. (Kaggle, or the company), of which he was president and remains a minority shareholder. We shall affirm the order.

I. BACKGROUND

In this action, plaintiff Jeremy Howard alleges that Kaggle’s chief executive officer (CEO), Anthony Goldbloom, three other members of its board of directors (Benjamin Hamner, Ash Fontana, and Curtis Feeny), and three limited partnerships (Zetta Venture Partners I, L.P., Voyager Capital Fund IV, L.P., and Voyager Capital Founders’ Fund IV, L.P. (the VC defendants) ) abused their corporate power and breached their fiduciary duty to him by wrongfully diluting his interest in Kaggle’s stock, transferring its value to themselves through a self-dealing transaction.

A. Allegations of the Complaint

Goldbloom formed an Australian company, Kaggle Pty Ltd, in 2010. In 2011, he recruited Howard to invest in the Australian company and join as an employee. Howard accepted, and he invested $100,000 Australian dollars for a 10 percent share in the company. Goldbloom decided to move the company to California, and in 2011, he and Howard formed Kaggle, Inc., a Delaware company.

Howard rewrote Kaggle’s software platform, developed a business plan and financial model, and prepared a presentation for potential investors. The company raised $11.25 million from a group of venture capitalists (referred to in the complaint as the "Original VCs"). In recognition of Howard’s contributions, Kaggle’s board of directors approved the issuance of nearly half of the outstanding Kaggle common stock to Howard, with Goldbloom retaining a slight majority position. Goldbloom served as Kaggle’s CEO, and Howard was the company’s president and chief scientist.

The company suffered business setbacks under Goldbloom’s leadership, and the Original VC’s told Goldbloom in June 2013 that they wanted him to step down as CEO. Goldbloom persuaded the company’s board of directors to terminate Howard’s employment instead, and Howard ceased working for Kaggle in August 2013.

The company’s financial troubles increased, and by February 2015, it was "on the brink of collapse." In debt and almost out of money, the company needed fresh capital. Defendants devised a scheme in 2015 by which Kaggle increased its issued and outstanding stock tenfold, thus diluting the value of the existing common stock, without compensation to the minority shareholders. Defendants used the newly issued shares to pay off the Original VC’s, and divided the remainder among themselves. They caused Kaggle to increase the stock option pool available to management from 8.14 percent to 37.26 percent of Kaggle stock, in order to mitigate the effects of the common stock dilution.¹

Defendants arranged a merger with Google in 2017. Goldbloom told an investor, Nicholas Gruen, that Google would pay $60,000,000 for Kaggle, and that Google had been chosen from two other potential suitors, including Amazon. Gruen said the price seemed low in light of the other companies’ interest, and Goldbloom agreed Kaggle could probably get more but said he wanted the deal. The final terms of the merger deal provided that Google paid approximately $47,900,000, plus an additional $10,000,000 in "stay bonuses" to members of management. Goldbloom and Hamner received "stay bonuses" of $3,000,000 each, and "closing bonuses" equal to half the value of the stock options they had recently received as if the merger had accelerated the vesting of those options. Plaintiff alleged the stay bonuses and closing bonuses were a "blatant diversion of merger consideration from the minority shareholders." Howard’s share of the merger proceeds was a little more than $700,000.

Based on these allegations, Howard and Gruen pled causes of action for breach of fiduciary duty against Goldbloom, Hamner, Fontana, and Feeney; and aiding and abetting breach of fiduciary duty, unjust enrichment, and constructive trust against all defendants. Gruen later dismissed his claims with prejudice.

B. Petition to Compel Arbitration

Defendants petitioned to compel arbitration of the claims asserted in the complaint and to stay proceedings in this action on the ground that Howard had signed four separate agreements in which he consented to arbitrate disputes related to Kaggle. Three of the agreements were signed in October 2011, when Howard became employed by Kaggle, and the fourth was a separation agreement executed in October 2013, after Howard’s employment ended.

The trial court denied the petition, concluding that the arbitration clauses in the four agreements "go to the terms and interpretation of those agreements and matters released by them. Those employment-related agreements preceded by years the issues pled in the complaint, which do not regard Howard’s employment." This timely appeal ensued.

II. DISCUSSION

A. Legal Principles

" ‘California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.’ [Citation.] It is the party opposing arbitration who bears the burden to show the arbitration provision cannot be interpreted to cover the claims in the complaint. [Citations.] There is no public policy, however, that favors the arbitration of disputes the parties did not agree to arbitrate." ( Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890, 221 Cal.Rptr.3d 225 ( Aanderud ).) Thus, "no dispute may be ordered to arbitration unless it is within the scope of the arbitration agreement." ( Titolo v. Cano (2007) 157 Cal.App.4th 310, 317, 68 Cal.Rptr.3d 616.)

" ‘[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is "broad" or "narrow." ’ [Citation.] ‘A "broad" clause includes those using language such as "any claim arising from or related to this agreement." ’ [citation] or ‘ "arising in connection with" the agreement’ [citation]. ‘It has long been the rule in California that a broadly worded arbitration clause ... may extend to tort claims that may arise under or from the contractual relationship. "There is no requirement that the cause of action arising out of a contractual dispute must be itself contractual. At most, the requirement is that the dispute must arise out of the contract." ’ " (Rice v. Downs (2016) 248 Cal.App.4th 175, 186, 203 Cal.Rptr.3d 555 ( Rice ); accord Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684-686, 99 Cal.Rptr.2d 809 [arbitration required where hospital’s complaint was based on insurer’s refusal to renegotiate reimbursement rates provided for in contract].) Put another way, "[f]or a party’s claims to come within the scope of such a clause, the factual allegations of the complaint ‘need only "touch matters" covered by the contract containing the arbitration clause.’ " ( Ramos v. Superior Court (2018) 28 Cal.App.5th 1042, 1052, 239 Cal.Rptr.3d 679.) Broad arbitration clauses are interpreted to apply to extracontractual disputes between the contracting parties, " ‘so long as they have their roots in the relationship between the parties which was created by the contract.’ " ( Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 660, 188 Cal.Rptr.3d 113 ( Khalatian ), quoting Berman v. Dean Witter & Co., Inc. (1975) 44 Cal.App.3d 999, 1003, 119 Cal.Rptr. 130.) In deciding whether a dispute has its roots in the relationship created by the contract, we "examine[ ] the nature of the agreement and of the claims and their relationship to one another ..." ( Rice , at p. 188, 203 Cal.Rptr.3d 555.)

In contrast, narrow clauses requiring arbitration of claims " ‘arising from’ or ‘arising out of’ an agreement, i.e., excluding language such as ‘relating to this agreement’ or ‘in connection with this agreement,’ are ‘generally considered to be more limited in scope’ "( Rice , supra , 248 Cal.App.4th at p. 186, 203 Cal.Rptr.3d 555 ), and "have generally been interpreted to apply only to disputes regarding the interpretation and performance of the agreement." ( Ramos , supra , 28 Cal.App.5th at p. 1052, 239 Cal.Rptr.3d 679.)

We apply ordinary state-law contract principles when we determine whether the parties agreed to arbitrate a dispute, construing the arbitration agreement to give effect to the intention of the parties. ( Aanderud , supra , 13 Cal.App.5th at p. 890, 221 Cal.Rptr.3d 225.) Because there is no conflicting evidence, we review the trial court’s determination de novo. ( Ibid . )

B. The Arbitration Provisions

With these principles in mind, we examine the terms of the four agreements and consider whether they apply to this dispute.

1. 2011 Employment Agreement

In 2011, Howard entered into an employment agreement with Kaggle. The agreement included terms regarding the scope of his employment, his compensation, and the termination of his employment. It included the following arbitration clause: "In consideration of [Howard’s] employment with the Company, the Company’s promise to arbitrate all employment-related disputes, and [Howard’s] receipt of the compensation, pay raises, and other benefits paid to [Howard] by the Company, at present and in the future, [Howard] agrees that any and all controversies, claims or disputes with anyone (including the Company and any employee, officer,...