Aparna Palaparthi vs Padma Kastury et al

According to the FAC, Aparna and Padma agreed that they would take reduced compensation for their employment with the expectation that the money would be used for research and development, to preserve capital, and increase Genista’s value. (FAC at ¶ 17). Aparna and Padma agreed that they would later be compensated with “catch-up payment.” (Ibid.). Aparna alleges she never received “catch-up payment” and that her salary was reduced below the threshold required for exempt employees. (FAC at ¶ 19).

Aparna maintains she was not paid overtime, not provided accurate pay stubs, deprived of meal and rest breaks, paid less than minimum wage, and deprived of paid sick leave. (Ibid.). Aparna further alleges Padma has violated the Shareholder Agreement by purporting to add Arun and Kiran to the Board of Directors, attempting to approve and accept the Term Sheet for third-party investment that would dilute the shareholder’s ownership interest, attempting to change Genista’s articles of incorporation and Bylaws, and attempting to convert Genista to a Delaware corporation. (FAC at ¶ 83).

Aparna also alleges Defendants have refused to allow her to inspect the books and records of Genista “and have withheld and concealed corporate records, including those pertaining to the Investor transaction[,]” that would be detrimental to her continued employment. (FAC at ¶¶ 89, 46, 48).

Defendants Genista, Padma Katsury, Arun Katsury (“Arun”), and Kiran Katsury (“Kiran”) (collectively “Defendants”) move to compel arbitration of all but three causes of action brought by Ravi based on identical Arbitration Agreements separately executed in August 2024. Having reviewed the Agreements and evidence, the Court concludes that the motion should be granted.

II. LEGAL STANDARD Defendants maintain the Federal Arbitration Act governs the Arbitration Agreements. The Agreements provide:

“Any arbitration proceeding under this Agreement shall proceed under and be governed by the Federal Arbitration Act (“FAA”) because Employee, Worksite Employer, and Rippling PEO are engaged in interstate commerce.” (Declaration of Arun Katsury [“Katsury Decl.”], Exs. A-D). In addition, “[e]mployment contracts, except for those covering workers engaged in transportation, are covered by the FAA.” (EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, 289).

Under the 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]; see also Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170).

III. ANALYSIS A. VALID AGREEMENTS EXIST TO ARBITRATE Aparna, Padma, Arun, and Kiran and Geista have entered into valid agreements to arbitrate.11 “The moving party bears the burden of producing prima facie evidence of an agreement to arbitrate the controversy. 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 [internal citations and quotations omitted]).

Here, Defendants have attached copies of the Arbitration Agreements to their motion and have thus met their prima facie burden of proving the existence of an agreement to arbitrate. (Katsury Decl., Exs. A-D). Aparna affixed her electronic signature to the Agreement on August 5, 2024. (Katsury Decl. at ¶ 1, Ex. A.) Kiran, Padma, and Arun executed their Agreements on August 4, August 10, and August 19, 2024 respectively. (Id. at ¶ 2, Ex. B-D). “A party’s acceptance of an agreement to arbitrate may be express, as whether a party signs the agreement.” (Mendoza v.

Trans Valley Transport (2022) 75 Cal.App.5th 748, 777).

Plaintiff argues there is no mutual assent because Genista did not sign the Agreements. (Opposition at pp. 4:7- 6:20). “However, the writing memorializing an arbitration agreement need not be signed by both parties in order to be upheld as a binding arbitration agreement.” (Serafin v. Balco Properties, LLC (2015) 235 Cal.App.4th 165, 176 (Serafin)). “[I]t is not the presence or absence of a signature which is dispositive; it is the presence or absence of evidence of an agreement to arbitrate which matters.” (Banner Entertainment, Inc. v.

Superior Court (1998) 62 Cal.App.4th 348, 361 [emphasis in original]). As with any other written agreement, “[a] party who has signed a written contract may be compelled specifically to perform it, though the other party has not signed it, if the latter has performed, or offers to perform on his part, and the case is otherwise proper for enforcing specific performance.” (Civ. Code § 3388). “Evidence confirming the existence of an agreement to arbitrate, despite an unsigned agreement, can be based, for example on conduct from which one could imply either ratification or implied acceptance of such a provision.” (Serafin, supra, 235 Cal.App.4th at p. 176 [internal citations and quotations omitted]).

Conduct implying ratification nor acceptance of an agreement to arbitrate can include seeking to enforce the agreement or printing the arbitration agreement on company letterhead. (Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 397-398 [citing Lara v. Onsite Health, Inc. (N.D. Cal. 2012) 896 F.Supp.2d 831 for the proposition that an intent to be bound can be shown by the fact that the agreement was printed on the company letterhead, the agreement was presented as part of the New Hire packet, and the language bound both parties to arbitration]).

In addition, “[w]here an arbitration agreement includes a signature line for the employee to acknowledge assent to the agreement, the employee’s signature creates an express bilateral contract.” (Mar v. Perkins (2024) 102 Cal.App.5th 201, 213).

Here, the Arbitration Agreements are not printed on company letterhead, but consistently refer to “Employee, Worksite Employer, and Rippling PEO.” For example, the Agreements state “Employee, Worksite Employer and Rippling PEO agree that any claim and/or controversy that Employee may have against Worksite Employer, Rippling PEO, or Company Entities (as defined below), or that Worksite Employer or Rippling PEO may have against Employee, shall be submitted to and determined exclusively by binding arbitration.” (Katsury Decl., Exs.

A-D [emphasis added]). This language demonstrates an intent for both parties to be bound by the Agreements. Furthermore, the Agreements include a signature line for the employees, which alone creates express bilateral contracts. (Reply at pp. 3:6-4:23). (Mar, supra, 102 Cal.App.5th at p. 213). Moreover, Genista has moved to arbitrate Aparna’s claims against it. Thus, Genista has offered to perform its end of the bargain which evidences its ratification of the Agreements. Therefore, the language of the Agreements and Genista’s attempt compel

11 Defendants concede there is no agreement to arbitrate between Ravi and Genista as he is not a Genista employee. 15

arbitration are evidence of its intent to be bound by its terms. The lack of a signature does not preclude the existence of valid agreements to arbitrate.

B. THE SCOPE OF THE AGREEMENTS COVER PLAINTIFFS’ CLAIMS Although the scope of the Agreements includes employment related claims such as wrongful termination, discrimination, and harassment, the intent of the Agreements is broad. The Agreements clearly provide that they cover “any claim and/or controversy” that the parties may have against one another including “all disputes, whether based on tort, contract, statute[.]” (Katsury Decl., Exs. A-D). “When an arbitration clause is interpreted ‘broadly,’ it reaches every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract.” (Brinkley v.

Monterey Financial Services, Inc. (2015) 242 Cal.App.4th 314, 332 (Brinkley)[internal citations and quotations omitted]). In addition, the parties are not just required to arbitrate their claims against Genista, but also against each other. The Agreements provide:

Employee’s agreement to arbitrate claims against Worksite Employer or Rippling PEO includes claims that Employee may bring against Worksite Employer’s or Ripping PEO’s respective parent, subsidiary, affiliated or client entities as well as owners, directors, officers, managers, employes, agents, brokers, contractors, attorneys, including in their capacity as benefit plan administrators or fiduciaries to any employee benefit plan of which Employee is a participant or beneficiary, and insurers of Worksite Employer or Rippling PEO (“Company Entities”). (Ibid.).

Plaintiffs concede that Aparna’s employment-related claims (fifth through eleventh causes of action) are subject to arbitration. (Opposition at pp. 7:1-8:16; Reply at p. 5:23-6:1). Moreover, Defendants do not move to compel arbitration of the second through fourth causes of action to the extent they are brought by Ravi. (Defendant’s Motion to Compel Arbitration at p. 1:23-24.) Ravi is not an employee of Genista and has not executed an arbitration agreement with it. Defendant does, however, move to compel arbitration of the first and twelfth through fourteenth causes of action or the derivative claims brought by both Ravi and Aparna on behalf of Genista. (Id. at pp. 12:2-13:6).

Plaintiff admits that “the facts relating to the manipulation of Aparna’s salary by Defendants may be presented in connection with her Labor Code claims as well as her and Ravi’s minority shareholder oppression claims . . . those facts are still relevant to the oppression claim whether or not Aparna is able to prove Labor Code violations.” (Opposition at p. 10:6-10). As noted by Defendant, there is significant overlap between Aparna’s Labor Code claims and corporate governance claims. For example, the first cause of action for declaratory relief “targets Genista’s approval of an Investor Term Sheet that Aparna alleges was expressly tied to terminating her employment with Genista.” (Reply at p. 7:1-2 [citing FAC at ¶¶ 46, 57, 70, 76]).

Similarly, the twelfth cause of action for breach of fiduciary duty, “is based on Aparna’s allegation that Defendants wrongfully approved an Investor Term Sheet that was engineered to force her exit as an employee.[.]” (Reply at p. 7:16-17 [citing FAC at ¶¶ 46, 147]). As Defendant notes, “these claims are all premised, at least in part, on factual allegations that ‘touch’ Aparna’s contractual relationship with Genista.” (Reply at p. 6:23-24.) (Brinkley, supra, 242 Cal.App.4th at p. 332 [“Stated differently, [t]o require arbitration [a party’s] factual allegations need only ‘touch matters’ covered by the contract containing the arbitration clause and all doubts are to be resolved in favor of arbitrability.” (internal citations and quotations omitted)]).

Additionally, in a derivative action, the shareholders who file suit are merely nominal plaintiffs. (Klopstock v. Superior Court (1941) 17 Cal.2d 13, 21.) The corporation “is the ultimate beneficiary of such a derivative suit.” (Ibid.). “The corporation [is] the real party plaintiff in the action.” (Russell v. Weyand (1935) 5 Cal.App.2d 259, 260). Thus, Genista is the real party in interest with respect to the derivative claims. Pursuant to the Arbitration

Agreements executed with Padma, Arun, and Karan, Genista is required to arbitrate its claims with them. (Reply at p. 9:3-6). Since the Arbitration Agreements are broad and the derivative claims belong to Genista, the twelfth through fourteenth causes of action also fall within the scope of the Agreements.

C. THE AGREEMENTS ARE NOT UNCONSCIONABLE Defendants argue the Agreements may be enforced because they are not unconscionable. (Mtn. to Compel Arbitration at pp. 10:19-11:13). Although Plaintiffs do not contest the enforceability of the Agreements, the Court nevertheless considers the unconscionability arguments.

The party challenging a contractual arbitration provision bears the burden of proving that it is both procedurally and substantively unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO)). This may be done on a sliding scale, where the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required, and vice versa. (Id. at pp. 125-126). Nevertheless, both must be shown. Procedural unconscionability focuses on oppression or surprise to the “weaker” party based on unequal bargaining power, whereas substantive unconscionability focuses on the terms of the agreement and whether they are overly harsh or one-sided. (OTO, supra, 8 Cal.5th at pp. 125-129). The Court thus proceeds to consider whether the Agreements are procedurally and substantively unconscionable.

The Agreements here are standalone three-page documents and include a capitalized and bold-face disclaimer at the end stating that the parties agree to give up their right to trial by jury. Although only three pages long, the Agreements are nevertheless dense with legal jargon and statutory references that are difficult for a layperson to understand. (Katsury Decl, Exs. A-D [referring to the “National Relations Board”, the “Equal Employment Opportunity Commission”, “statute of limitations”, and “motion for summary judgment”]). (See OTO, supra, 8 Cal.5th at p. 128 [finding procedural unconscionability where the substance of the agreement was filled with statutory references and legal jargon]).

While signed years after becoming an employee, the Agreements were still offered as a condition of employment. “[T]he cases uniformly agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis.” (Lagatree v. Luce (1999) 74 Cal.App.4th 1105, 1127). This type of contract of adhesion in the employment context adds a modest amount of procedural unconscionability. (See Nguyen v.

Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248). Thus, a moderate degree of procedural unconscionability exists given its presentation and adhesive nature.

As for substantive unconscionability, the Agreements provide that the parties must select an arbitrator by mutual agreement. “Such an arbitrator shall be a retired federal judge or judge of the state court of general jurisdiction, or another qualified and impartial person that Employee and Worksite Employer or Rippling PEO decide upon.” (Katsury Decl., Exs. A-D). The Agreements further provide that the Federal Rules of Civil Procedure and Federal Rules of Evidence shall apply. (Ibid.). With respect to the costs of arbitration, the Agreements provide “[i]f employee works at a location within California, Worksite Employer or Rippling PEO will pay the arbitrator’s fees and other costs relating to the arbitration forum.” (Ibid.).

However, the parties are expected to bear their own attorney’s fees unless the arbitrator shifts the party’s costs and fees in accordance with applicable law. (Ibid.). The Court does not find these terms to be substantively unconscionable. Given the low degree of procedural unconscionability and absence of substantive unconscionability, the Court concludes that the Agreements are enforceable.

D. STAY OF PROCEEDINGS A stay of these proceedings is eminently proper under 9 U.S.C. section 3 until the completion of arbitration. “[T]he decision to stay the remaining nonarbitrable claims, is soundly vested in the court’s discretionary authority to control its docket.” (Benson Pump Co. v. S. Cent Pool Supply (D.Nev. 2004) 325 F.Supp.3d 1152, 1160).

As noted above, all of the causes of action, save for the second through fourth causes of action brought by Ravi, are arbitrable. Not only is there significant overlap between the joint causes of action brought by Ravi and Aparna, but as noted above, all of the claims are based in whole in part on Aparna’s employment at Genista. (Reply at p. 7:20- 21.) Staying the entire proceeding avoids the substantial risk of inconsistent rulings inherent in parallel proceedings, and thereby will advance rather than undermine the effectiveness and efficiency of this arbitration in harmony with the strong public policy objectives of the FAA.

IV. CONCLUSION Based on the foregoing, the Motion to Compel Arbitration is GRANTED. This action is STAYED in its entirety pending the outcome of arbitration.

The Court will provide the formal Order.

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