Valley Pizza, Inc. v. Herbst

• Docket Number: 24-CV-02934-TSH
• Decision Date: 03 October 2024
• Parties: VALLEY PIZZA, INC., Plaintiff, v. JOHN A. HERBST, et al., Defendants.
• Court: U.S. District Court — Northern District of California

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VALLEY PIZZA, INC., Plaintiff, v. JOHN A. HERBST, et al., Defendants.

No. 24-CV-02934-TSH

United States District Court, N.D. California

October 3, 2024

ORDER DENYING MOTION TO COMPEL ARBITRATION Re: Dkt No. 14

THOMAS S. HIXSON, UNITED STATES MAGISTRATE JUDGE

I.INTRODUCTION

Pending before the Court is a Motion to Compel Arbitration brought by Defendants John A. Herbst, Allen M. Toy, Neil Cortesi and JohnG. Budd. ECF No. 14.PlaintiffValley Pizza, Inc. filed an Opposition (ECF No. 18) and Defendants filed a Reply (ECF No. 20).The Court finds this matter suitable for disposition without oral argument and VACATES the October 10, 2024 hearing.SeeCiV. L.R. 7-1(b).For the reasons stated below, the CourtDENIES the motion.^[1]

II.BACKGROUND

On May 15, 2024, PlaintiffValley Pizza, Inc. initiated this lawsuit in this Court against individual DefendantsJohn A. Herbst, Allen M. Toy, Neil Cortesi and John G. Budd.SeeComplaint, ECF No. 1at 1.In its Complaint, Plaintiff alleges Causes of action for (1) Violation of 26 U.S.C. § 7431 against Defendant Budd (Compl. ¶¶ 23-30); (2) invasion of privacy against Defendant Budd (Compl. ¶¶ 31-37); (3) violation of California Business and Professions Code § 17200 against Defendant Budd (Compl. ¶¶ 38-42); (4) abuse of process against Defendant Budd (Compl. ¶¶ 43-47); and (5) civil conspiracy against Defendants Herbst, Cortesi and Toy (Compl. ¶¶ 48-54).

On July 15, Defendants filed the instant Motion to Compel Arbitration.ECF No. 14.On July 29, Plaintiff filed an opposition to Defendants' motion.ECF No. 18(“Opp'n”).On August 5, Defendants filed a reply.ECF No. 20(“Reply”).

Defendants have proffered a copy of a stock purchase and sale agreement (“Stock Purchase Agreement”) dated March 1, 2022 and signed by Defendants and Circle Pizza, LLC, which is not a party in this action.Decl. of John Budd, ECFNo. 14-1(“Budd Decl.”)¶¶ 2, 5 & Ex.A to Budd Decl.The Stock Purchase Agreement includes an arbitration provision, which provides:

Section 9.12Disputes.Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in Sacramento, California before one arbitrator(s).The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures and in accordance with the Expedited Procedures in those Rules.Judgment on the Award may be entered in any court having jurisdiction.This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.The parties shall maintain the confidential nature of the arbitration proceeding and the Award, including the Hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a courtapplication for a preliminary remedy, a judicial challenge to an Award or its enforcement, or unless otherwise required by law or judicial decision.

Stock Purchase Agreementat 18-19, Sec. 9.12.The Stock Purchase Agreement collectively identifies Defendants as “Seller” and Circle Pizza LLC as “Buyer.”Stock Purchase Agreement at

1.The last page of the Stock Purchase Agreement includes e-signatures dated March 1, 2022 by each of Defendants and by Kuljeet Singh as a member of Circle Pizza, LLC.Stock Purchase Agreementat 20.Defendants have also proffered a complaint Defendants filed against Circle Pizza in JAMS arbitration.BuddDecl. ¶ 5 & Ex.A to Budd Decl.

III.

IV.LEGAL STANDARD

The Federal Arbitration Act(“FAA”)“makes arbitration agreements ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'”Viking River Cruises, Inc. v. Moriana, 596 U.S. 639, 649-50(2022)(quoting9 U.S.C. § 2).The purpose of the FAA is to “rigorously enforce” private arbitration agreements according to their terms.Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 233(2013).The FAA “mandates that district courtsshall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218(1985)(emphasis in original).The Court's role is to decide: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.”Brennan v. Opus Bank, 796 F.3d 1125, 1130(9th Cir.2015).“If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms.”Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130(9th Cir.2000).“[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”Id. at 1131.

“When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally . . . should apply ordinary state-law principles that govern the formation of contracts.”First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944(1995).“California law, like federal law, reflects a strong policy favoring arbitration agreements[.]”Wagner Constr. Co. v. Pac. Mech. Corp., 41 Cal.4th 19, 31(2007).Still, “[a]party petitioning the court to compel arbitration bears the burden of proving by a preponderance of evidence the existence of an arbitration agreement.”Olvera v. El Pollo Loco, Inc., 173 Cal.App.4th 447, 453(2009)(citation omitted), abrogated on other grounds byAT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339(2011).Under California law, a contract requires (1)parties capable of contracting; (2) consent; (3) a lawful object; and (4) consideration.Cal. Civ. Code § 1550.“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”Cal. Civ. Proc. Code § 1281.

In deciding a motion to compel arbitration, courts must “treat the facts as they would when ruling on a motion for summary judgment, construing all facts and reasonable inferences that can be drawn from those facts in a light most favorable to the non-moving party.”Shepardson v. Adecco USA, Inc.,No. 15-cv-5102-EMC, 2016 WL 1322994 at *2(N.D. Cal.Apr. 5, 2016)(citingChavez v. Bank of Am., No. 10-cv-653-JCS, 2011 WL 4712204, at *3(N.D. Cal.Oct. 7, 2011)).

V.DISCUSSION

“[A]s a general rule, ‘the right to arbitration depends on a contract, and a party can be compelled to submit a dispute to arbitration only if the party has agreed in writing to do so.'”Jensen v. U-Haul Co. of California, 18 Cal.App. 5th 295, 300(2017)(quotingMatthau v. Superior Ct., 151 Cal.App.4th 593, 598(2007)).“Even the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement.”Suh v. Superior Ct., 181 Cal.App.4th 1504, 1512(2010)(quotations omitted).See alsoKramer v. Toyota Motor Corp., 705 F.3d 1122, 1126(9th Cir.2013)(“The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement”)(quotingComedy Club, Inc. v. Improv W. Assocs.,553 F.3d 1277, 1287(9th Cir.2009)).Because “arbitration is a matter of contract,” the FAA cannot require a party“to submit to arbitration any dispute which he has not agreed so to submit.”United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582(1960).California courts have, however, recognized circumstances under which a “nonsignator[y] to an agreement containing an arbitration clause can be compelled to arbitrate under that agreement.”Suh, 181 Cal.App.4th at 1513.A nonsignatory plaintiff may be required to arbitrate its claims, inter alia, based on estoppel, where the plaintiff is the third-party beneficiary of the contract containing the arbitration provision, or based on agency principles.Id.;see alsoJensen, 18 Cal.App. 5th at 301-07.

Defendants do not assert that Plaintiff Valley Pizza was a party to the Stock Purchase Agreement.Instead, Defendants argue that “Plaintiff is estopped from refusing to arbitrate since its claims arise from the Stock Purchase Agreement, Plaintiff is an agent of Circle Pizza, and Plaintiff was a third party beneficiary of the Stock Purchase Agreement.”Mot. at 2.

1.Estoppel

Defendants contend that Plaintiff is estopped from refusing to arbitrate because its claims depend upon the Stock Purchase Agreement between Defendants and Circle Pizza, which contains an arbitration provision.Mot.at 5-6;seeStock Purchase Agreementat 18-19, Sec. 9.12.

“A nonsignatory plaintiff may be estopped from refusing to arbitrate when he or she asserts claims that are ‘dependent upon, or inextricably intertwined with' the underlying contractual obligations of the agreement containing the arbitration clause.'”Jensen, 18 Cal.App. 5th at 306(quotingJSM Tuscany, LLC v. Superior Court, 193 Cal.App.4th 1222 1239(2011)).However, “[e]ven if a plaintiff's claims ‘touch matters' relating to the arbitration agreement, ‘the claims are not arbitrable unless the plaintiff relies on the agreement to establish its cause of action.'”Id.See alsoGoldman v. KPMG, LLP, 173 Cal.App.4th 209, 229(2009)(holding“[t]he purpose of the [equitable estoppel] doctrine is to prevent a plaintiff from . . . relying on the contract when it works to his advantage by establishing the claim, and repudiating it when it works to his...