Petition to Compel Arbitration
Case No. 25CV480225 Petition to Compel Arbitration
I. BACKGROUND Plaintiffs Halo Microelectronics Co., Ltd. (“HMC”) and Halo Microelectronics Int’l Corp. (“HMI”) (collectively “Halo”) have filed suit against defendant Darson Zhang (“Zhang”) for breach of fiduciary duty, conversion, and aiding and abetting breach of fiduciary duty. HMC is a Chinese corporation located in Foshan City, China. (Complaint at ¶ 2). HMI is a Delaware corporation with its principal place of business in San Jose, California, and is an indirect subsidiary of HMC. (Id. at ¶ 3). Halo designs, develops, and commercializes high-performance analog and mixed-signal integrated circuit products for consumer and auto electronics. (Id. at ¶ 8).
David Nam (“Nam”) became CEO of HMI in June 2019 and CEO of HMC in December 2020, overseeing Halo’s business operations. (Complaint at ¶¶ 9, 10). In December 2019, HMI hired Zhang as Vice President and General Manager of HMI’s Power Conversion Business Unit. (Id. at ¶ 12). In July 2021, HMC entered into a joint development agreement with Navitas Semiconductor Ltd. to divest the power conversion business into a separate company. (Id. at ¶ 13). HMC and Navitas used Elevation Semiconductor, Inc. (ESI) to carry out research and development into charger and adapter technology. (Ibid). Nam was appointed CEO and director of ESI with Navitas CEO Gene Sheridan as the only other director. (Complaint at ¶ 14). Zhang served as General Manager and Vice President at ESI while continuing to hold positions at HMI. (Id. at ¶ 15).
ESI enacted the 2021 Equity Incenstive Plan to attract and retain full-time employees. (Complaint at ¶¶ 16, 17). HMC understood the plan was for full-time ESI employees not otherwise employed by Halo, as providing Halo employees with ESI stock options would dramatically overcompensate them. (Id. at ¶ 17). Under the First Amendment to the 2021 Equity Incentive Plan, Zhang received 200,000 stock option grants and Nam received 240,000 grants, vesting at 25 percent after the first year and approximately 1.6 percent monthly, thereafter, with acceleration upon change-of-control events. (Id. at ¶ 18). Zhang received approximately twenty times more stock than individual full-time ESI engineers. (Id. at ¶ 19). Neither Zhang nor Nam disclosed they were awarding themselves substantial ownership stakes in ESI while remaining Halo fiduciaries. (Ibid).
On June 26, 2022, Nam signed an Assignment and Assumption agreement transferring HMC’s entire interest in ESI to eventually sell the equity at an artificially low price without HMC’s knowledge or consent. (Complaint at ¶ 21). On August 19, 2022, Nam allowed Navitas to obtain legal control of ESI without consideration to HMI. (Id. at ¶ 22). Zhang and Nam actively negotiated the sale of HMI’s interest in ESI to Navitas to accelerate vesting and obtain more stock options. (Id. at ¶ 23). Navitas CEO Gene Sheridan was desperate to acquire HMI’s shares as Navitas stock had fallen from $18.56 per share to $4.08 per share between October 2021 and October 2022. (Id. at ¶ 24).
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The parties reached a tentative agreement in October 2022 valuing ESI at $80 million, meaning HMI would receive $20 million in Navitas stock. (Complaint at ¶ 25). The existing option pool would increase from 12.7 percent to 15.7 percent. (Ibid). Nam would personally receive $3,120,000 for investing 100 percent in Elevation Microsystems, Nam’s newly formed company designed to compete with Halo. (Ibid). Zhang demanded payment to stay silent about Nam’s self-dealing and Elevation Microsystems. (Complaint at ¶ 26). Nam and Sheridan agreed to pay Zhang $1,600,000 for 100 percent support, which included supporting the undervalued transaction and keeping Nam’s secrets. (Ibid).
The parties reached an agreement in January 2023. (Complaint at ¶ 27). On January 18, 2023, Nam and Zhang each signed Key Holder Agreements transferring their vested ESI shares into equivalent Navitas shares. (Ibid). Zhang’s agreement shows he owned 340,025 stock options and received $1,687,952 worth of Navitas stock. (Ibid). Nam’s agreement shows he owned 668,030 stock options and received $2,316,235 worth of Navitas stock. (Ibid). On January 19, 2023, Navitas announced acquiring the remaining minority interest in ESI from HMI for $20 million in Navitas stock. (Complaint at ¶ 28).
Following the announcement, Navitas stock rose steadily to $10.54 per share by June 30, 20203. (Ibid). An email from Navitas General Counsel Paul Delva to Nam dated March 19, 2023, outlined concealment efforts, stating it was preferable not to register Nam’s shares to prevent HMC from learning about the improper stock receipt and Navitas’s secret investment in Nam’s company. (Complaint at ¶ 29).
Nam resigned as CEO of ESI following the buyout and stepped down as CEO of HMC in December 2023 but continued as CEO of HMI until March 2025. (Complaint at ¶ 30). At that point, Halo began investigating Nam’s conduct, allegedly revealing widespread breaches of fiduciary duty, fraud, theft, and misuses of confidential information. Halo sued Nam in a separate action. (Ibid). Zhang resigned from ESI in February 2023 and continued employment at HMI until leaving in March 2024. (Complaint at ¶ 31).
Zhang now moves to compel arbitration pursuant to the Confidentiality, Non-compete and Invention Assignment Agreement (“the Agreement”). Zhang maintains this action is related to the pending arbitration arising from Halo Microelectronics Co., Ltd. v. Elevation Microsystems, Inc., et al., Case No. 25CV463582 (“Elevation action”). Halo argues the Agreement does not cover its claims against Zhang, which are different from the Elevation action. Halo also maintains that Zhang waived its right to arbitrate by failing to first mediate this dispute. Having reviewed the Agreement, the Court finds this motion premature for failure to mediate as a condition precedent to arbitration and denies the motion. The Court, however, grants Zhang’s Request for Judicial Notice pursuant to Evidence Code section 452, subdivision (d).
II. LEGAL STANDARD Under the Federal Arbitration Act (“FAA”), the court’s role is limited to determining “(1) whether a valid agreement to arbitrate exists, and if it does (2) whether the agreement encompasses the dispute at issue.” (Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130). To determine “whether a valid contract to arbitrate exists,” courts apply “ordinary state law principles that govern contract formation.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1093 [citations omitted]; Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170).
Code of Civil Procedure section 1281.2 provides: “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate such controversy, the court shall order the petitioner and respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for rescission of the agreement.”
In determining the threshold question of whether an arbitration agreement exists between the parties, the court employs a three-step burden shifting analysis. (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755 (Iyere); Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060). The party seeking to compel arbitration bears the initial burden of showing an agreement to arbitrate. If that burden is met, the burden shifts to the opposing party to show a factual dispute regarding the agreement’s existence. If the opposing party does so, then the burden shifts back to the proponent of arbitration to show the existence of a valid agreement by a preponderance of the evidence. (Iyere, supra, 87 Cal.App.5th at p. 755).
III. ANALYSIS A. SCOPE OF THE AGREEMENT Although Zhang presents a valid agreement to arbitrate, at issue is whether he can show that it encompasses the dispute at issue. “ ‘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.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165-166 [internal citations omitted]). Zhang attaches the Agreement as Exhibit A to his declaration. The Agreement bears his signature dated June 8, 2020. By presenting a copy of the Agreement bearing his signature, Zhang has met his initial burden of showing that an agreement to arbitrate exists.
The Agreement contains four categories of provisions relevant to this motion: (1) restrictions on the use and disclosure of confidential information; (2) assignment and return of certain tangible and intangible property; (3) restrictions on competitive activities and solicitation; and (4) an arbitration requirement for any controversies, disputes, or claims arising out of or relating to the Agreement. In this regard, paragraph 10 of the Agreement provides in relevant part:
- b. Arbitration. Subject to the Halo Mircroelectronics’ and/or the Employee’s right to seek equitable relief if the Mediation was not successful in accordance with the Handbook, the Parties agree that any controversy, dispute or claim arising out of or relating to this Agreement will be settled by a confidential, final and binding arbitration in Los Angeles, California administered by the [Los Angeles office of JAMS, in accordance with the Expedited Procedures in the JAMS Comprehensive Arbitration Rules and Procedures] (the “Arbitration Rules”) then in effect. I acknowledge that by agreeing to arbitrate, I give up my right to litigate their employment dispute in court or to submit to a jury. The decision of arbitrator is final and binding.(Declaration of Darson Zhang [“Zhang Decl.”], Ex. A at ¶10(b)).
“ ‘[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause is “broad” or “narrow.” A “broad” clause includes those using language such as “any claim arising from or related to this agreement” or “arising in connection with the agreement”. 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 . . . At most the requirement is that the dispute must arise out of the contract.’” (Howard v.
Goldbloom (2018) 30 Cal.App.5th 659, 663-664 [quoting and citing Rice v. Downs (2016) 248 Cal.App.4th 175, 186] (Howard)). “For 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 (Ramos)). “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”’ [] and ‘have generally been interpreted to apply only to disputes regarding the interpretation and performance of the
agreement.’” (Howard, supra, 30 Cal.App.5th at p. 664 [quoting and citing Ramos, supra, 28 Cal.App.5th at p. 1052]).3 The arbitration clause in the Agreement is broad. It provides that “any controversy, dispute or claim arising out of or relating to this Agreement will be settled by confidential, final, and binding arbitration.” Use of the words “any” and “relating to” requires that at most the dispute arise out of the Agreement. The factual allegations of the Complaint touch matters covered by the Agreement. Paragraph six of the Agreement requires:
During my employment with Halo Microelectronics, I shall not, and shall not permit any persons subject to my direction or control (including my affiliates) to, directly or indirectly, on their on behalf or on behalf of any other person (except the Halo Microelectronics or its affiliates), (i) call upon or solicit business of any person who is a customer or supplier of Halo Microelectronics, (ii) otherwise divert or attempt to divert any business from the Halo Microelectronics, (iii) interfere with the business relationships between the Halo Microelectronics and any of its customers, suppliers, or others with whom they have business relationships.
Pursuant to this paragraph, Zhang was prohibited from allowing his affiliates, such as Nam, from diverting business from Halo. In the breach of fiduciary duty claim, Halo alleges “[o]n information and belief, Mr. Zhang concealed his knowledge of David Nam’s competing business in exchange for money.” (Complaint at ¶ 33). In the conversion claim, Halo alleges that Zhang improperly accepted 140,025 additional stock options for his 100 percent support which included “(1) supporting a transaction that vastly undervalued ESI, (2) keeping David Nam’s self-dealing a secret, and (3) keeping the existence of Elevation Microsystems a secret.” (Id. at ¶¶ 37, 26).
Finally, in the aiding and abetting claim, Halo alleges Zhang provided “substantial assistance” to Nam in connection with his own breach of fiduciary duties. (Id. at ¶ 42). These allegations indicate that Zhang violated paragraph six of the Agreement by concealing Nam’s competitive activities contrary to Halo’s interests in exchange for equity. Halo’s claims, therefore, “relate to” and “touch upon” the subject matter of the Agreement.4
To the extent Halo argues the claims are instead covered by the scope of the Employment Agreement which contains an integration clause and no arbitration clause, this argument fails for two reasons. First, Halo attached a copy of the Employment Agreement to its opposition to the earlier petition but not to the instant motion. Second, even if the Court considers the Employment Agreement attached to the earlier petition, it nevertheless references the Agreement at issue. (Opposition at p. 3:23). To incorporate another agreement by reference, “the contract need not recite that it ‘incorporates’ another document, so long as it ‘guide[s] the reader to the incorporated document.’” (Shaw v.
Regents of University of California (1997) 58 Cal.App.4th 44, 54). Even so, “[s]everal contracts relating to the same matters, between the same parties, and made as part of substantially one transaction, are to be taken together.” (Civ. Code § 1642). Zhang signed both agreements within two months of each other. (Opposition at p.
3 The Court agrees with Zhang’s reading of the relevant authorities. (Reply at p. 5:2-10). Efund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311 and Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186 concern broad arbitration clauses. On the other hand, Bono v. David (2007) 147 Cal.App.4th 1055, Medical Staff of Doctors Medical Center in Modesto v. Kamil (2005) 132 Cal.App.4th 679, Howard v. Goldbloom (2018) 30 Cal.App.5th 659, and Mortiz v. Universal City Studios LLC (2020) 54 Cal.App.5th 238, concern narrow arbitration clauses or claims arising from obligations independent of the contract.
Although this case is more akin to Efund or Vianna, the Court nevertheless finds the legal guidance from Howard instructive. 4 Zhang also contends “[e]quitable estoppel provides a separate and independent basis to compel arbitration of Plaintiff’s claims against Zhang, apart from the direct arbitrability of claims against Nam.” (Reply at p. 7:5-6). Zhang maintains the claims against him center on “whether Nam engaged in the alleged misconduct that is already the subject of the pending arbitration.” (Id. at p. 7:21-22).
Thus, the claims against Zhang cannot be resolved independently as they underly Nam’s conduct. While Zhang raises these arguments for the first time on reply, the Court in any event need not address them as it has already found that the scope of the Agreement covers Halo’s claims. 14
3:14; Zhang Decl. at ¶ 3, Ex. A). (See Bmp Property Dev. v. Melvin (1988) 198 Cal.App.3d 526, 531 [“It is not necessary these several contracts be executed contemporaneously to bring them within the purview of Civil Code section 1642; it is a question of fact whether the contracts are intended to be elements of a singular transaction.”] Both agreements involve the same parties and concern the terms of Zhang’s employment. They can, therefore, be taken together. Nonetheless, consideration of the Employment Agreement is not necessary as the Court has concluded that the scope of Halo’s claims are covered by the Agreement.
Lastly, to the extent Zhang argues in its moving papers that equitable estoppel compels arbitration by Halo China, the Court also does not reach this issue. Halo forfeited any argument about non-signatories by not addressing Zhang’s arguments on those points. In any event, the Court in the Elevation action concluded “Defendants have demonstrated that the causes of action asserted by Halo are intimately found and intertwined with those asserted by HMI such that equitable estoppel applies, because of their preexisting relationship and because throughout their FAC, Plaintiffs assert their allegations collectively on behalf of ‘Halo’” (Zhang’s Request for Judicial Notice, Ex. 4 at p. 13:1-4).
Based on the facts of the Complaint here, the Court applies the same reasoning and likewise concludes “Halo China may be compelled to arbitration under the arbitration provision despite not being a signatory to the Confidentiality Agreement.” (Id. at p. 13:9-10).
B. EQUITABLE REMEDIES Halo argues the Agreement is exempt from equitable remedies; therefore, the equitable relief sought by them is not arbitrable. The second cause of action for conversion seeks equitable remedies. In particular, paragraph 10 provides, “[s]ubject to the Halo Microelectronics’ and/or the Employee’s right to seek equitable relief if the Mediation was not successful in accordance with the Handbook . . . .” (Zhang Decl., Ex. A at ¶ 10). Halo argues “the statement ‘[s]ubject to [HMI’s] and/or the Employee’s right to seek equitable relief’ would not have been included if it was intended to add no meaning.” (Opposition at p. 13:21-22 [emphasis in original]).
Zhang responds that Halo misreads the clause and that the prefatory phrase “reserves a litigation option for equitable relief if mediation fails; it does not strip the arbitrator of jurisdiction over equitable claims.” (Mtn. to Compel Arbitration at p. 12:21-22 [emphasis in original]).
Halo advanced the same arguments in the Elevation action. The Court in the Elevation action rejected Halo’s argument and held that it was “not persuaded by Plaintiffs’ arguments that the FAC’s claims for equitable remedies and for breach of fiduciary duty fall outside the scope of the arbitration provision.” (Zhang’s Request for Judicial Notice, Ex. 4 at p. 14:5-7). The Court finds no reason to deviate from that decision and holds that the prefatory language reserves a litigation option for equitable relief but does not strip the arbitrator of jurisdiction over such claims. Moreover, rule 24(c) of the JAMS Rules incorporated into the Agreement grant the arbitrator with authority to award equitable remedies. (JAMS Comprehensive Arbitration Rules, rule 24(c), available at https://www.jamsadr.com/rules-comprehensive-arbitration#Rule-24).
In any event, “ ‘California has a strong public policy in favor of arbitration’ ‘. . . arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question.’” (Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 [quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 and Weeks v. Cow (1980) 113 Cal.App.3d 350, 352]). “Doubts as to whether an arbitration clause applies in a particular dispute are to be resolved in favor of sending the parties to arbitration.” (United Transportation Union v. Southern Cal. Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 808). Any doubts as to the scope of the Agreement are to be resolved in favor of arbitration. Therefore, the Court does not read the prefatory language to exclude equitable remedies from arbitration.
C. WAIVER FOR FAILURE TO MEDIATE Here, Halo argues Zhang has waived its right to arbitration by failing to mediate. The Agreement’s dispute resolution procedure requires mediation as follows:
a. Mediation. The parties hereto agree that any claim or controversy arising out of or relating to this Agreement shall first be submitted to non-binding mediation (“Mediation”) in the Campbell, California. Each party shall bear its own costs and expenses of participating in the Mediation, and each party shall bear one half (1/2) of the fees of the mediator. The mediator shall be selected by the parties’ mutual agreement within ten (10) calendar days of the date of the notice by one party to the other requesting mediation (“Mediation Notice”).
If the parties cannot timely mutually agree upon a mediator, the American Arbitration Association in Campbell, California shall promptly select a mediator. The parties agree that time is of the essence and that they will each, in good faith, seek to conclude the mediation process within sixty (60) days following the date of the Mediation Notice. If the parties have not satisfactorily concluded the mediation process on or prior to the sixtieth (60th) day following the date of the Mediation Notice, then either party may give the other party written notice to terminate the Mediation and submit their dispute to arbitration or pursue the filing of a lawsuit. (Zhang Decl., Ex.
A at ¶ 10(a)).
“Several federal appellate courts have held that, when the terms of the arbitration agreement include submission of the dispute to mediation as a condition precedent, then the court should not compel arbitration when the parties have failed to mediate the dispute.” (Mostowfi v. I2 Telecom Int’l Inc. (2004) No. C03-5784 VRW, U.S. Dist. LEXIS 33321 at 12 [citing Him Portland v. Devito Builders (1st Cir. Jan. 17, 2003) 317 F.3d 41 and Kemiron Atl., Inc. v. Aguakem Int’l Inc. (11th Cir. May 8, 2002) 290 F.3d 1287]).
The Agreement is clear that the parties must first submit this action to mediation as a condition precedent before resorting to arbitration. (See Platt Pacific, Inc. v. Anderson (1993) 6 Cal.4th 307, 313 (Platt Pacific) [“Thus, a condition precedent is either an act of a party that must be performed or a certain event that must happen before the contractual right accrues or the contractual duty arises.”]).
Unlike the Elevation action, the parties here have not mediated their claims. (Zhang’s Request for Judicial Notice, Ex. 4 at p. 14:26-27 [“Defendants assert that mediation occurred and was completed on September 2, 2025, and was therefore complete within the requisite timeframe.”]). As Zhang points out, Halo initiated this action and did so without first seeking to mediate. Halo maintains they did not believe their causes of action against Zhang were arbitrable and, therefore, had no reason to seek mediation.
Nevertheless, the language of the provision here imposes the requirement to mediate on both parties. (See cf. Azrate v. ACE American Ins. Co. (2025) 108 Cal.App.5th 1191, 1200 [noting that the language of the agreement stating, “a party who wants to start the arbitration procedure,” referred to an action by a plaintiff]). In this instance, both parties were obligated to submit this matter to mediation.
“The nonoccurrence of a condition precedent may be excused for a number of legally recognized reasons. But when a party has failed to fulfill a condition that was within is power to perform, it is not an excuse that the party did not thereby intend to surrender any rights under the agreement.” (Platt Pacific, supra, 6 Cal.4th at p. 314). In this regard, “[t]o establish waiver under generally applicable contract law, the party opposing enforcement of a contractual agreement must prove by clear and convincing evidence that the waiving party knew of the contractual right and intentionally relinquished or abandoned it.” (Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 584).
Here, Halo failed to submit this matter to mediation in the first place and instead chose to pursue this action in court believing that the Agreement did not apply. Zhang, on the other hand, has maintained that the dispute is
subject to the Agreement, has been aware that the parties are required to first submit to mediation, and has yet moved to compel this action to arbitration. Based on the language of the Agreement, the Court finds that mediation is a condition precedent that must be completed before the matter can be ordered to arbitration. If mediation is unsuccessful, then the dispute between the parties can be sent to arbitration. There is no evidence that either party requested mediation or declined prior to filing this motion.
Zhang, as the moving party, has not fulfilled the mediation condition precedent contained in the Agreement. For this reason, the motion to compel arbitration is DENIED without prejudice to being refiled after the parties have fulfilled the mediation requirement in the Agreement. Accordingly, the motion is premature, and the matter cannot be submitted to arbitration at this time.
IV. CONCLUSION Based on the foregoing, the motion to compel is DENIED without prejudice. The Court will prepare the formal Order.
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9:01 A.M. Calendar Lines # 1 Case Name Oswald Campesato vs Jiahua Huang et al