Opinion
A165960
06-07-2023
MILO BROWN, Plaintiff and Respondent, v. ALBERT YE et al., Defendants and Appellants
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. 22CV009060
Markman, J. [*]
Plaintiff Milo Brown filed a lawsuit alleging that his terminally ill father entered into a commercial cannabis business relationship with defendants Albert and Jonathan Ye. Brown alleges that the Ye's subsequently appropriated and diverted income, revenue, and corporate assets from that relationship to their other businesses.
The Ye's filed a petition to compel arbitration of Brown's dispute based on an arbitration clause in an incubation contract, necessary to obtain permitting for a commercial cannabis operation, purportedly signed by his father. The trial court denied the petition, concluding that Brown's dispute does not arise from that contract. The Ye's appeal. We affirm.
BACKGROUND
A. Complaint
Brown filed a complaint as an individual and on behalf of Alyer Distribution, Inc. (Alyer Distribution) against Albert and Jonathan Ye and three companies under their control: Alyer Bioceuticals, Inc. (Alyer Bioceuticals), Alyer Laboratories, Inc., and Alyer Management, Inc. Brown alleges that he and the Ye's formed and organized Alyer Distribution as a corporation in February 2019. Brown alleges that Albert Ye "purports" to be the chief executive officer, and Jonathan Ye is the chief financial officer, of Alyer Distribution.
Brown's complaint asserts four causes of action: (1) breach of fiduciary duty; (2) fraud; (3) financial elder abuse; and (4) violation of California's Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17200 et seq.). Brown asserts the breach of fiduciary duty and fraud claims against the Ye's. The financial elder abuse and UCL claims are asserted against the Ye's, as well as the three defendant corporations under their control.
Brown alleges that his father "was ill with terminal cancer and limited in his understanding and cognitive ability when he entered into the business relationship with Defendants and each of the[m] knew of such illness and the fact that [Brown's father] was physically and mentally weak and susceptible to suggestion and influence." During the summer of 2019, Brown and his father had "several discussions" with the Ye's. According to Brown, the Ye's represented that Brown would own a majority of the issued stock of Alyer Distribution, and that the Ye's would manage Alyer Distribution "in good faith" and "with the best interests" of Brown and his father. Believing these representations, Brown alleges, he and his father decided to enter into a business relationship with the Ye's. Brown's father died in July 2020. Under the financial elder abuse cause of action, Brown alleges that he is the "Successor in Interest" of his father.
Brown's complaint alleges that the Ye's "have taken, withdrawn, and appropriated income and revenue in undisclosed amounts without authorization or the right to do so." Brown alleges that income and revenue from Alyer Distribution "has been diverted and wrongfully attributed and reported as income and revenue of" the Ye's three other companies. He also alleges that the Ye's have not held shareholder meetings, adopted bylaws, or maintained business records for Alyer Distribution.
Brown also alleges that, from 2020 to 2022, the Ye's appropriated and transferred the "premises, intellectual property, trade and service marks, accounts receivable, good will and other corporate assets" of Alyer Distribution without consideration. Brown alleges that, from 2021 to 2022, the Ye's "caused and allowed at least one judgment by default to be entered" and "a notice regulatory compliance [sic] to be recorded" against Alyer Distribution.
B. The Incubation Contract and Its Arbitration Clause
The Ye's filed a petition to compel arbitration on the grounds that a written agreement to arbitrate covers Brown's claims. They offered as evidence an undated three-page document entitled "Incubation Contract for Commercial Cannabis Permitting" (incubation contract), which we discuss below.
The incubation contract forms the foundation of a business relationship with Brown's father that would create a distribution company allowing the Ye's to take advantage of regulations created by the City of Oakland intended to promote equity in the cannabis industry. Directly below its title, the incubation contract references Oakland Municipal Code chapters 5.80 and 5.81. Chapter 5.80 relates to medical and adult-use cannabis dispensary permits. It includes the "Equity Permit Program," enacted by the Oakland City Council in 2017 to combat disparities and minimize barriers of entry into the industry. (Press Release, City of Oakland, City of Oakland Releases Medical Cannabis Permit Applications (May 23, 2017) <https://www.oaklandca.gov/news/2017/city-of-oakland-releases-medical-cannabis-permit-applications> [as of June 7, 2023].) Under this program, a "General Applicant" can receive permitting priority if it provides an "Equity Applicant"-an Oakland resident who meets certain income and background requirements, like having a prior criminal conviction for a cannabis-related offense-with free rent for at least 1,000 square feet of space to operate their business.
The incubation contract identifies Alyer Bioceuticals as the general applicant and Brown's father as the equity applicant. It also lists Alyer Distribution as "the new corporate entity to be formed jointly by the General Applicant and Equity Applicant." It provides that the general applicant and equity applicant "shall jointly form a new corporate entity with the California Secretary of State, Alyer Distribution, Inc. The General Applicant and Equity Applicant shall each have 50% ownership of Alyer Distribution, Inc. and shall split all net profits of Alyer Distribution, Inc. (after deduction of operating expenses, taxes, and interest) with 50% to be dispersed [sic] the General Applicant and 50% to be dispersed to the Equity Applicant."
The incubation contract states that Alyer Bioceuticals "has secured a site for operation of Alyer Distribution" in a space of 1,075 square feet through a rental agreement priced at $2,775 per month, and that Alyer Bioceuticals "shall pay rent" for a period of three years. It provides that the contract will terminate after the three-year incubation period, or earlier if the equity applicant's commercial cannabis permit is denied, suspended, or revoked.
The final clause of the incubation contract reads, "Arbitration: Any claim or dispute arising under or relating to this contract or a breach thereof, shall be finally resolved by binding arbitration in Oakland, California, or another location mutually agreeable to the Parties. The arbitration shall be conducted on a confidential basis and pursuant to the Commercial Arbitration Rules of the American Arbitration Association. An award of arbitration may be confirmed in a court of competent jurisdiction in California."
The incubation contract is not dated. With their petition to compel arbitration, the Ye's attached a copy of the incubation contract bearing two signatures-one with the name "Jonathan Ye" as general applicant, and the other with the name "John Brown" as equity applicant.
C. Order Denying Petition to Compel Arbitration
Brown opposed the petition to compel arbitration. He argued that the arbitration provision of the incubation contract did not cover his dispute because his claims were based on events that occurred after the formation of Alyer Distribution. Brown also argued that he could not be compelled to arbitrate because he himself was not a signatory to the incubation contract, his father's signature was a forgery, and the incubation contract was unconscionable.
The trial court denied the petition to compel arbitration. The court explained: "The dispute identified in the Complaint does not appear to arise under the Contract. The Contract concerns a relationship between the General Applicant (Alyer Bioceuticals) and the Equity Applicant (John Brown) to form a corporation (Alyer Distribution, Inc.) to carry out the cannabis incubation tasks identified in the contract terms pursuant to Oakland municipal law. . . . The Complaint does not allege or refer to any written agreement among the parties. Plaintiff's Complaint does not seek to enforce the Contract terms, does not allege a clear breach of the Contract terms, and does not seek damages arising from a breach of the Contract terms." Because the dispute was not covered by the incubation contract, the trial court explained that it need not reach Brown's other argument that his father's signature was a forgery.
The Ye's appeal.
DISCUSSION
The California Arbitration Act (Code Civ. Proc., § 1280 et seq.) sets forth "a comprehensive statutory scheme regulating private arbitration in this state." (Moncharsh v. Heily &Blase (1992) 3 Cal.4th 1, 9.) Under section 1281.2 of the California Arbitration Act, a party may petition the court to compel another party to arbitrate a controversy. The trial court is required to order arbitration "if it determines that an agreement to arbitrate the controversy exists," subject to certain enumerated exceptions. (§ 1281.2.) When the court's determination rests solely on a decision of law, as it did here, we review the order de novo. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890 (Aanderud); Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425.) We turn first to the trial court's authority to decide whether Brown's dispute was subject to arbitration.
Undesignated statutory references are to the Code of Civil Procedure.
I. Authority to Decide Arbitrability
In their briefing on appeal, the Ye's argued that the question of whether Brown's claims are arbitrable had to be decided by the arbitrator, not by the trial court. At oral argument, however, the Ye's conceded that the trial court had the authority to decide arbitrability.
The Ye's are right to concede the point. Whether an arbitration agreement covers a particular controversy is described as one of the"' "gateway" questions of "arbitrability." '" (Aanderud, supra, 13 Cal.App.5th at p. 891.) We" 'presume that the parties intend courts, not arbitrators, to decide . . . disputes about 'arbitrability,'" though parties may agree to delegate such questions to an arbitrator. (Ibid.; see Dennison v. Rosland Capital LLC (2020) 47 Cal.App.5th 204, 209; Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 781.) To establish a delegation of authority to an arbitrator, the Ye's would have had to establish by "clear and unmistakable" evidence that the parties intended such a delegation. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) It is undisputed that there was no express delegation clause in the incubation contract here. Instead, prior to conceding this argument, the Ye's contended that there was a delegation solely based on reference to the Commercial Arbitration Rules and Mediation Procedures for the American Arbitration Association (AAA) in the arbitration clause of the incubation contract. We have repeatedly rejected such references to the rules of an arbitration organization, like the AAA, as a clear and unmistakable delegation particularly where, as here, there is no evidence that the parties were sophisticated entities or had any intent to delegate questions of arbitrability to the arbitrator. (Jack v. Ring LLC (2023) Cal.App.5th [2023 Cal.App. LEXIS 417, p. *20]; Gostev v. Skillz Platform, Inc. (2023) 88 __ Cal.App.5th __ 1035, 1052.)
The Commercial Arbitration Rules and Mediation Procedures of the AAA are not quoted or appended to the incubation contract, but provide: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope of validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." (AAA, Commercial Arbitration Rules & Mediation Procedures, as amended, eff. Oct. 1, 2013, rule R-7 <https://adr.org/sites/default/files/Commercial%20Rules.pdf> [as of June 7, 2023].)
II. Arbitrability of the Dispute
The Ye's contend that, while the trial court had authority to decide arbitrability, it erred by concluding that the incubation contract did not cover Brown's claims. Brown argues that he cannot be compelled to arbitration because he himself is not a signatory to the incubation contract, and even if he could, his claims are unrelated to the incubation contract. We address each of Brown's arguments in turn.
Brown also argues that his father never signed the incubation contract and that the signature bearing his father's name was a forgery. The Ye's respond that there is no admissible evidence of fraud or forgery. Given that the trial court declined to reach such issues as unnecessary to its decision and instead concluded that the arbitration agreement did not cover Brown's dispute, and we see no error in this conclusion, we need not and do not address these additional issues.
A. Basis to Compel Non-Signatory Brown
As a general rule, someone who does not sign an arbitration agreement cannot be compelled to arbitration under its terms. "Although '[t]he law favors contracts for arbitration of disputes between parties' [citation],' "there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate ...." '" (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744.) There are certain circumstances, however, in which nonsignatories can nonetheless be compelled to arbitration pursuant to an agreement. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513.) One such circumstance is where a non-signatory steps into the shoes of the signatory by virtue of their status as a successor in interest of that signatory. (See Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1285 [court must determine whether non-signatory is bound as an assignee or successor in interest of one of the original parties]; Exarhos v. Exarhos (2008) 159 Cal.App.4th 898, 904-905 [person who acts as a decedent's successor in interest" 'step[s] into [the decedent's] position' "].)
Here, the Ye's argue that Brown can be compelled to arbitration as a successor in interest. On the breach of fiduciary duty and fraud claims, the Ye's contend that Brown is suing as a successor in interest because he stepped into his father's shoes after his father granted him stock in Alyer Distribution. But the complaint alleges that the Ye's represented and agreed that Brown and his father would own a majority of the issued stock of Alyer Distribution. Either way, the Ye's present no evidence or authority for their position that a purported grant of stock to Brown before his father's passing would somehow transform him into a successor in interest who can be compelled to arbitration under a contract he did not sign. On the contrary, Brown asserts these causes of action on behalf of himself as an individual (not as his father's survivor) and on behalf of Alyer Distribution. At oral argument, Brown also explained that he was not relying on the incubation contract as the source of the fiduciary duty owed to him by the Ye's.
On the financial elder abuse cause of action, however, the Ye's rely on the allegation that Brown is "the Successor in Interest" to his father. Given this allegation, we agree that Brown's status as a non-signatory alone does not defeat the petition to compel arbitration on this cause of action. "A long line of California and federal cases holds that claims framed in tort are subject to contractual arbitration provisions when they arise out of the contractual relationship between the parties." (Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418, fn. 12.) Brown does not offer, nor are we aware of, authority that elder financial abuse claims deviate from this general principle. (E.g., Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1409, fn. 3 [explaining "elder abuse cause of action may appropriately be resolved in arbitration"]; Hogan v. Country Villa Health Services (2007) 148 Cal.App.4th 259, 269 [noting case law does not "give any indication that the policies favoring the enforcement of arbitration agreements [citation] conflict with the policies aimed at 'protect[ing] a particularly vulnerable portion of the population from gross mistreatment in the form of [elder] abuse and custodial neglect' "].)
To the extent that the Ye's rely on the successor in interest allegation to compel arbitration on all of Brown's causes of action, we are not persuaded. Section 377.11 defines a decedent's successor in interest, in the context of a particular cause of action, as "the beneficiary of the decedent's estate or other successor in interest who succeeds to a cause of action or to a particular item of the property that is the subject of a cause of action." (Italics added.) There is no legal authority or other reason for us to conclude that Brown's successor in interest allegation on his financial elder abuse claim is, without more, a sufficient basis to compel arbitration of all of his causes of action. With this in mind, we proceed with our analysis of whether Brown's dispute is covered by the arbitration agreement in the incubation contract.
B. Arbitrability of Brown's Claims
Although the trial court reached the opposite conclusion, the Ye's commit only two paragraphs of their reply brief to argue that the incubation contract covers the "subject matter" of the dispute. They do not cite any specific allegations in the complaint or any other authority to support their position. Their opening and reply papers in the trial court below were similarly devoid of any citation to allegations, evidence, or authority.
" 'Appellate briefs must provide argument and legal authority for the positions taken.'" (In re A.C. (2017) 13 Cal.App.5th 661, 672.) "If an argument in an appellate brief is supported by only an opinion or argument of appellant's counsel without 'citation to any recognized legal authority,' that argument may be deemed waived for failure to present supporting substantive legal analysis." (Ibid.) By not citing any legal authority supporting their assertion that Brown's claims are covered by the incubation contract, the Ye's have forfeited the argument.
Addressing the merits, we are not persuaded that the arbitration provision of the incubation contract covers Brown's dispute here. In deciding whether the parties agreed to arbitrate a particular set of claims, we apply state law principles of contract interpretation to evaluate whether the parties intended to submit the issue to arbitration. (Aanderud, supra, 13 Cal.App.5th at p. 890.) Again, the arbitration clause provides that "[a]ny claim or dispute arising under or relating to this contract or a breach thereof" shall be resolved by arbitration. While the phrase "arising under or relating to" is generally construed as a broad provision, it does not mean that the parties agreed to arbitrate any dispute between them. (See, e.g., Vaughn v. Tesla, Inc. (2023) 87 Cal.App.5th 208, 225 [concluding arbitration agreement only encompassed claims related to period of direct employment and did not cover any dispute between the parties].) The question is whether Brown's claims arise under or relate to the incubation contract.
We begin with the cause of action for financial elder abuse. Given that the complaint is not a model of clarity, we consider the elements of such a claim. "Financial abuse" of an elder occurs when a person "(1) Takes, secretes, appropriates, obtains, or retains . . . property of an elder . . . for a wrongful use or with intent to defraud, or both"; "(2) Assists in taking, secreting, appropriating, obtaining, or retaining . . . property of an elder . . . for a wrongful use or with intent to defraud, or both"; or "(3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, . . . property of an elder . . . by undue influence . . . ." (Welf. &Inst. Code, § 15610.30, subd. (a)(1)-(3).)
With this framework in mind, we look at the relevant allegations in the complaint. The complaint alleges that the Ye's "have taken, withdrawn, and appropriated income and revenue" from Alyer Distribution, and then diverted and wrongfully attributed it to their three other companies. It also alleges that, from 2020 to 2022, the Ye's appropriated and transferred the "premises, intellectual property, trade and service marks, accounts receivable, good will and other corporate assets" of Alyer Distribution without consideration.
We conclude that the alleged misconduct is not "arising under" or "relating to" the incubation contract. The incubation contract covers the formation of Alyer Distribution, providing that Brown's father and Alyer Bioceuticals each had 50 percent ownership of the corporation, and terms relating to the lease for its place of business. Nowhere does it set forth the relationship of either Albert or Jonathan Ye to Alyer Distribution, or their authority thereunder, which are at issue in the financial elder abuse claim. (See Vaughn v. Tesla, Inc., supra, 87 Cal.App.5th at p. 217 [arbitration agreement only covered direct employment relationship, not claims based on period plaintiffs were employed by staffing agencies].) Nor does the incubation contract govern the terms of the Ye's management of Alyer Distribution in the years after its formation. Moreover, while Brown alleges that the Ye's wrongfully took his father's property, the claim is not based on any purported violation of terms in the incubation contract for example, that Alyer Bioceuticals and Brown's father have equal ownership of Alyer Distribution or must split its net profits equally. Instead, this financial elder abuse claim is based on the allegation that the Ye's "raided" the assets of Alyer Distribution and diverted it to other businesses.
While we need not address the remaining claims given there is no basis to compel non-signatory Brown to arbitration on them, we would reach the same conclusion. The UCL cause of action includes allegations regarding fraud and the diversion of benefits and mismanagement of the corporation which, as described above, are not covered by the incubation contract. As for the breach of fiduciary duty cause of action, Brown disclaims any such duty based on the incubation contract, as noted above. The complaint alleges that the Ye's owed Brown the duties of a fiduciary through their positions with and actions regarding Alyer Distribution. In other words, Brown claims that the Ye's had a fiduciary duty through their positions managing Alyer Distribution, and that Brown was owed those duties as a stockholder. The fraud cause of action is based on the alleged verbal representations that the Ye's made to Brown and his father regarding the receipt of issued stock and benefits, as well as the management of Alyer Distribution "in good faith and with the best interests of [Brown and his father]." It is not based on any representation made in the incubation contract.
In sum, we see no error in the trial court's conclusion that Brown's dispute fell outside of the arbitration clause in the incubation contract.
III. Petitioners' Public Policy Arguments
The Ye's argue that, in denying their petition to compel arbitration, the trial court "effectively accepted" Brown's "generalized contention" that "enforcement of the arbitration agreement would be prejudicial to their substantive legal rights." We reject this characterization of the trial court's ruling. There is nothing to indicate that any asserted prejudice regarding arbitration factored into the denial of the petition. On the contrary, the court simply determined that the plain language of the arbitration provision in the incubation contract did not cover Brown's claims as alleged in the complaint.
The Ye's urge us to send the case to arbitration because public policy generally favors arbitration. It is well-accepted that" '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.'" (Aanderud, supra, 13 Cal.App.5th at p. 890.) "There is no public policy, however, that favors the arbitration of disputes the parties did not agree to arbitrate." (Ibid.)
The parties' consent to arbitrate is the key to assessing the vast majority of petitions to compel arbitration. (Westmoreland v. Kindercare Education LLC (2023) 90 Cal.App.5th 967, 977.) Consistent with general contract principles, the language of the incubation contract, and the allegations that support his elder financial abuse claim, Brown cannot be compelled to accept arbitration of a dispute that he did not agree to arbitrate. (Victoria v. Superior Court, supra, 40 Cal.3d at p. 744.) The trial court did not err.
IV. DISPOSITION
The order is affirmed. Brown is entitled to his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
We concur: Stewart, P.J., Miller, J.
[*] Judge of the Alameda Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.