NGUYEN vs MA, et al.

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

Tentative Ruling

NOTICE: PLEASE TAKE NOTICE that pursuant to “Public Notice – Civil Division Expansion of Law and Motion Calendar” any oral arguments regarding this tentative ruling will be heard in Department 25, located at 720 9th Street, Sacramento, CA, the Hon. Julie G. Yap presiding. Should argument be requested by either party, the requesting party must call the Law and Motion Oral Argument Request Line at (916) 874-2615, request the hearing, and notify the opposing party of the location and time of hearing pursuant to Local Rule 1.06.

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A Stipulation and Appointment of Official Reporter Pro Tempore (CV/E-206) is required to be signed by each party, the private court reporter, and the Judge prior to the hearing, if not using a reporter from the Court’s Approved Official Reporter Pro Tempore list.

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

Once the form is signed it must be filed with the clerk. If a litigant has been granted a fee waiver and requests a court reporter, the party must submit a Request for Court Reporter by a Party with a Fee Waiver (CV/E-211) and it must be filed with the clerk at least 10 days prior to the hearing or at the time the proceeding is scheduled if less than 10 days away. Once approved, the clerk will be forward the form to the Court Reporter’s Office and an official reporter will be provided.

Defendants Lee Vo and KDS USA Nail Manufactory, LLC’s (“KDS”) (collectively “Moving Defendants”) motion to compel arbitration is ruled upon as follows.

Background

The complaint alleges the following: Defendants Lee Vo and Dat Ma (“Individual Defendants”) are husband and wife. (Complaint, ¶3.) Plaintiff My Hoa Nguyen entered into an “Agreement to Sell Business” with Defendants in March 2020. (Id., ¶6.) “Plaintiff [], and Lee Vo signed on behalf of KDS as buyers, and Dat Ma and Lee Vo signed as sellers.” (Ibid.) As a result of the purchase, Plaintiff and Lee Vo became 50% owners of KDS. (Id., ¶9.) Also in March 2020, Plaintiff and Lee Vo entered into an Operating Agreement under which they agreed to form KDS as a limited liability company. (Id., ¶10.)

The Operating Agreement contained an arbitration clause. (Id., ¶10(b).) In October 2024, Plaintiff called for dissolution of KDS, asserting she could no longer work with Lee Vo or Dat Ma for a variety of reasons, including alleged wrongdoing by both Defendants. (Id. ¶¶15, 20-26.) Although Dat Ma was no longer an owner of KDS pursuant to the Agreement to Sell, he continued to draw a salary and used a company credit card for personal expenses. (Id. ¶¶23, 25.) On December 31, 2024, Plaintiff filed a complaint against Dat Ma, Lee Vo, and KDS for 1) breach of written agreements, 2) rescission and dissolution, 3) breach of fiduciary duty, 4) constructive discharge, 5) conspiracy, 6) unfair competition law, and 7) declaratory relief.

On March 7, 2025, Moving Defendants filed the instant motion to compel Plaintiff to arbitration and stay the proceedings pending resolution of the matter pursuant to Code of Civil Procedure section 1281.2. (Notice of Motion, 1:22.) Plaintiff opposes, arguing the case should not be compelled to arbitration without Dat Ma, who is an essential party to the operating agreement despite not being a signatory.

Legal Standard

A written agreement to submit a controversy to arbitration is valid, enforceable, and irrevocable consistent with standard contract principles. There is a strong public policy favoring the enforcement of arbitration agreements. (Code Civ. Proc. §1281; Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706.)

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy, the Court shall order the parties to arbitrate the matter if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) the right to compel arbitration was waived by the petitioner; (b) grounds exist for the revocation of the agreement; or, (c) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc. §1281.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

Section 2 of the FAA is essentially the same:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction or an agreement in writing to submit to arbitration an existing controversy shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

“Under both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” (Sparks v. Del Mar Child and Family Svcs. (2012) 207 Cal.App.4th 1511, 1517.) “Absent a clear agreement to submit disputes to arbitration, courts will not infer that the right to a jury trial has been waived.” (Id. at 1518.)

“A party seeking to compel arbitration of a dispute bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. [Citation.]” (Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 8.) Normal principles of contract interpretation apply to the interpretation of contractual arbitration provisions. Included among these is the long-accepted rule that ambiguities in an arbitration agreement, as in any other type of contract, must be interpreted against the drafting party. Interpretation of ambiguous provisions requires application of the canons of construction - such as resolving ambiguities against the drafter. (Victoria v. Superior Court (1985) 40 Cal.3d 734, 739, 745-747.)

Discussion

The arbitration clause in the Operating Agreement reads as follows:

10.1. Any dispute, claim, or controversy arising out of or related to this Agreement or the breach, termination, enforcement, interpretation, or validity thereof, including the determination of the scope of applicability of this agreement

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

to arbitrate, shall be determined by arbitration in Sacramento before three arbitrator(s). The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures and in accordance with the JAMS’ Streamlined Arbitration Rules and Procedures. 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.

(Complaint 4:1-6.)

Plaintiff does not dispute that she agreed to the arbitration provision in the Operating Agreement or that the arbitration clause encompasses the claims she asserts in this action against Defendant Lee Vo and KDS. Rather, Plaintiff clarifies that she does not object to arbitration, provided Defendant Dat Ma is also compelled to participate. In this regard, Plaintiff argues the Court should either force Dat Ma to participate in the arbitration proceedings, despite not being a signatory to the Operating Agreement, or decline to enforce the arbitration clause at all pursuant to Section 1281.2, subd. (c).

“There are circumstances in which nonsignatories to an agreement containing an arbitration clause can be compelled to arbitrate under that agreement. As one authority has stated, there are six theories by which a nonsignatory may be bound to arbitrate: “(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) thirdparty beneficiary.” (Benaroya v. Willis (2018) 23 Cal.App.5th 462.) Plaintiff does not specifically argue that any of these six theories apply to the facts before the Court. Nor does Plaintiff present any evidence in support of her argument that Dat Ma “is still a part of the business and is still using company assets.” (Opposition, 6:5-6.) Given this lack of argument or evidence, there is an insufficient basis for this Court to compel Defendant Dat Ma to arbitration as a nonsignatory.

The question, then, is whether the allegations against Defendant Dat Ma are so entwined with those asserted against the other defendants that the Court should decline to enforce the arbitration clause at all. Under Section 1281.2(c), a court may refuse to compel arbitration of all or part of an arbitrable controversy when: (1) “[a] party to the arbitration agreement is also a party to a pending court action with a third party, arising out of the same transaction or series of related transactions,” and (2) “there is a possibility of conflicting rulings on a common issue of law or fact.” (Code Civ.

Proc. § 1281.2(c).) For purposes of the statute, a third party is one who is neither bound by nor entitled to enforce the arbitration agreement. (Thomas v. Westklake (2012) 204 Cal.App.4th 605, 612.) Section 1281.2(c) “‘addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement.’” (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 393.)

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

The legislative history of Section 1281.2, subd. (c) broadly defines the problem the Legislature intended to address with this Section as follows: “In actions involving multiple parties with related claims, where some claimants agree to arbitrate their differences and others remain outside the agreement, arbitration is unworkable. Where a party to an arbitration agreement is also party to a pending court action or special proceeding, with such a third party, there may be a possibility of conflicting rulings on issues of law or fact.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No. 1628 (1977–1978 Reg. Sess.) p. 2, emphasis added; Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479.)

For purposes of determining whether there is a possibility of conflicting rulings, “the allegations of the parties” pleadings may constitute substantial evidence sufficient to support a trial court's finding that section 1281.2(c) applies. (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 972 [citing Abaya v. Spanish Ranch I, L.P. (2010) 189 Cal.App.4th 1490, 1498–1499].) “A party relying on section 1281.2(c) to oppose a motion to compel arbitration does not bear an evidentiary burden to establish a likelihood of success or make any other showing regarding the viability of the claims and issues that create the possibility of conflicting rulings.” (Id.) “Moreover, section 1281.2(c) prohibits a trial court from considering the merits of a party’s claims when ruling on a motion to compel arbitration.” (Id. [citing § 1281.2(c); California Correctional Peace Officers Assn. v.

State of California (2006) 142 Cal.App.4th 198, 205].)

Defendants do not appear to contest that the first prong of Section 1281.2, subd. (c) is met here, and the Court finds Defendant Dat Ma is a third party for purposes of this Section. He is not a party to the arbitration agreement contained in the Operating Agreement, yet the allegations against him arise out of the same series of related transactions. (Code Civ. Proc. § 1281.2(c)(1).)

As to the second prong, Defendants argue the claims Plaintiff asserts against Ma are distinct from those asserted against Vo and KDS because they largely stem from alleged violations of the Agreement to Sell rather than the Operating Agreement. The Court disagrees. Plaintiff alleges, among other things, that, with respect to all causes of action, Individual Defendants conspired “to usurp business opportunities at the expense of KDS and [Plaintiff].” (Compl. ¶23.) With respect to the conspiracy and unfair competition claims, Plaintiff alleges that Defendants conspired “to take [Plaintiff’s] money and to sell her an interest in KDS, while continuing to run the company and share none of the assets, profits, or attributes of the company with her.” Plaintiff alleges in all of her causes of action that Defendants’ conduct was a violation of both contracts, putting them both at issue.

Accordingly, there is a risk of a possibility of conflicting rulings should only some of Plaintiff’s claims be arbitrated.

Nevertheless, the Court’s inquiry does not end with this conclusion. Rather, “[t]o deny arbitration due to a possibility of conflicting rulings on common issues under section 1281.2,

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

subdivision (c), there must be not only the possibility of conflicting rulings, but a determination that this possibility should lead to the denial of arbitration, rather than one of the other alternatives set forth in the statute.” (Metis Development LLC v. Bohacek (2011) 200 Cal.App.4th 679, 690, as modified (Oct. 19, 2011.) Specifically, Section 1281.2(d) provides, in relevant part:

If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.

In this case, despite the somewhat conclusory allegations regarding conspiracy noted above, the factual allegations regarding the conduct giving rise to the causes of action relate to specific conduct alleged by Defendant Lee Vo (See, e.g., Compl. ¶¶ 21-22, 26, 33.) Indeed, even in the allegation of conspiracy set forth in Paragraph 23 and incorporated into all causes of action, Plaintiff further alleges in the sentences following, “Even though Dat Ma is no longer an owner, he continues to draw a salary to maintain vendor contacts, but he has established a business in the facilities, Blu Color, to compete with KDS.

This entity now charges a commission for contacts with vendors, even though those contacts have always been with KDS. Lee Vo set this up in breach of her fiduciary duty.” (Compl. ¶ 23 (emphasis added).) Such allegation appears to focus more on Defendant Lee Vo’s alleged conduct than that of Dat Ma. Further, to the extent Plaintiff alleges that the Individual Defendants engaged in fraud, used company credit cards/treasury to buy items for personal use, or acted in a harassing manner toward Plaintiff, it would not be inconsistent if there were findings that one individual defendant engaged in such behavior while the other did not.

Based on the allegations in the Complaint and the arguments submitted by the Parties, the Court finds that the possibility of inconsistent rulings can likely be avoided by staying the pending court action pending the outcome of the arbitration proceeding as to Plaintiff’s claims against Defendants Lee Vo and KDS.

Accordingly, pursuant to the Court’s authority delineated in Section 1281.2, subd. (c)-(d), the motion is GRANTED as to the claims against Defendants Lee Vo and KDS. The court action against Defendant Dat Ma is STAYED pending the outcome of the arbitration proceeding.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV026788: NGUYEN vs MA, et al. 04/07/2025 Hearing on Motion to Compel Arbitration in Department 53

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or other notice is required.