Opinion
B313230
03-30-2022
DE CONSULTING GROUP, INC., et al. Plaintiffs and Respondents, v. YOKOHAMA VENTURES, LLC, et al., Defendants and Appellants.
Quinn Emanuel Urquhart & Sullivan, Crystal Nix-Hines, Duane R. Lyons, Karen Bobrow, Dylan C. Bonfigli; Lewis Brisbois Bisgaard & Smith, John L. Barber, Efthalia S. Rofos for Defendants and Appellants. Cozen O'Connor, Eric L. Jackson, Matthew Lewitz and Thomas O'Rourke for Plaintiffs and Respondents.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. 20STCV18018, Christopher K. Lui, Judge. Affirmed in part and reversed in part with directions.
Quinn Emanuel Urquhart & Sullivan, Crystal Nix-Hines, Duane R. Lyons, Karen Bobrow, Dylan C. Bonfigli; Lewis Brisbois Bisgaard & Smith, John L. Barber, Efthalia S. Rofos for Defendants and Appellants.
Cozen O'Connor, Eric L. Jackson, Matthew Lewitz and Thomas O'Rourke for Plaintiffs and Respondents.
EDMON, P. J.
This appeal concerns a failed business relationship between the individual plaintiff and his corporation, on the one hand, and the individual defendant and her several entities, on the other. Various of the parties entered into four separate contracts governing different aspects of their relationships. As relevant to this appeal, two of the contracts contained arbitration clauses- one subject to Delaware law, and the other to California law- while the other two contracts did not. After the relationships between the parties ended, plaintiffs filed suit in Los Angeles Superior Court asserting 14 causes of action against the various defendants. Defendants moved to compel arbitration, and the trial court granted the motion as to some, but not all, of the causes of action. Defendants have appealed from the order to the extent that it denies the motion to compel arbitration.
We will affirm in part and reverse in part with directions. Specifically, we will reverse the trial court's order denying arbitration of the sixth, seventh, ninth, eleventh, and fifteenth causes of action as to defendant Yoshimi Iyadomi only. Except as specifically stated, we will affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties
Plaintiff Ron Scott (Scott) is a principal of plaintiff DE Consulting Group, Inc., a California corporation (DE Consulting).
Defendant Yoshimi Iyadomi is a principal of the four defendant entities: (1) Yokohama Ventures, LLC, a California limited liability company (Yokohama Ventures); (2) TS2 Holdings, LLC, a Delaware limited liability company (TS2); (3) Hero Software, LLC, a Delaware limited liability company (Hero); and (4) Rize Global, Inc., a Delaware corporation (Rize).
Defendant Paul Falzone is a business consultant who advised Iyadomi and some of the defendant entities. He is not a party to this appeal.
B. TS2 Operating Agreement
TS2 was formed in late 2017. Its operations are governed by an Operating Agreement (TS2 Operating Agreement), which provides in relevant part as follows:
Operation and management: The TS2 Operating Agreement provides that "the business and affairs of [TS2] shall be operated and managed by one or more Managers . . . [who] shall have the authority to make all operational or management decisions with respect to [TS2], its business, operations or investments and to take any actions, to make any determinations and to provide any consents permitted to be taken, made or provided by [TS2] under this Agreement and in furtherance of [TS2's] business." The Operating Agreement identifies Iyadomi as the sole initial manager of TS2.
Fiduciary duties: The Operating Agreement provides that it "is not intended to, and does not, create or impose any fiduciary duty on any Covered Person"-that is, on "any Member, Manager, Tax Representative, Officer, or their respective affiliates." Further, "each Member and Manager waives any and all fiduciary duties owed to [TS2] or to such Member by any Covered Person (including those fiduciary duties that, absent such waiver, may be implied by law), and . . . agrees that the duties and obligations of the Covered Persons to [TS2] and each other Member and Manager are only as expressly set forth in this Agreement." However, "each Member who is also an employee or officer of [TS2] or of any of its Affiliates shall nevertheless owe fiduciary duties (and other duties to the extent provided in any employment, consulting or similar agreement or arrangement) to [TS2] and its Affiliates."
Liability of Covered Persons: The Operating Agreement contains an exculpation clause, which provides that "[a]ny act or omission of a Covered Person, the effect of which may cause or result in loss or damage to [TS2] or the Members shall not, to the extent done in good faith and without breach of this Agreement or any other Agreement between such Covered Persons and [TS2], gross negligence or willful misconduct, subject a Covered Person to any liability to the Company or the Members."
Dispute resolution/choice of law: The Operating Agreement contains an arbitration clause, which requires arbitration of "[a]ny unresolved controversy or claim arising out of or relating to this Agreement." By its terms, the Operating Agreement is "governed by, and construed in accordance with" Delaware law.
Iyadomi signed a joinder to the Operating Agreement effective December 31, 2017, and Scott signed a joinder to the Operating Agreement effective January 1, 2018. By their signatures, Iyadomi and Scott agreed to "assume[] the obligations stated in the Operating Agreement."
C. The Contractor Agreement, Amended Contractor Agreement, and Employment Agreement 1. The Contractor Agreement
Effective November 1, 2017, Yokohama Ventures, on the one hand, and Scott and DE Consulting, on the other, entered into a Contractor Agreement which provided that DE Consulting would "provide [Scott's] work and services for the operation and management (the 'Services') . . . [of] . . . [Yokohama Ventures] and its affiliates, including without limitation TS2 . . ., which will be the primary consumer of the Services from [Scott]." During the five-year term of the contract, Scott would have the title of Interim President and COO of TS2 and would report to Iyadomi, TS2's Chief Executive Officer. As compensation, DE Consulting would receive a monthly salary, equity incentive units, and performance bonuses; further, Scott would receive a $100,000 loan evidenced by a promissory note, which he would repay at the rate of $25,000 per year.
The Contractor Agreement provided that Yokohama Ventures had the right to terminate the Contractor Agreement at any time, and that if it did so "as a result of an uncured breach by [DE Consulting], [Yokohama Ventures] shall have no further payment obligations to [DE Consulting]." However, if Yokohama Ventures terminated the Agreement "for any other reason, other than to transition [DE Consulting] to full time employment status, any balance of the loan will be forgiven, any unvested equity will accelerate in full, and a severance payment equal to 6 months compensation will be paid to [DE Consulting]."
By its own terms, the Contractor Agreement and the parties' performance under it were governed by the laws of California. Disputes "relating to this Agreement" were subject "to the exclusive jurisdiction of the state or federal courts in Los Angeles County, California."
2. Amended Contractor Agreement
Yokohama Ventures, TS2, Hero, Scott, and DE Consulting entered into an Amended Contractor Agreement effective April 11, 2018 (Amended Contractor Agreement). In relevant part, the Amended Contractor Agreement made the following changes to the Contractor Agreement:
(a) It eliminated the provision making Scott the interim President and COO of TS2.
(b) It assigned Yokohama Ventures' rights and interest in the Contractor Agreement to Hero, and provided that DE Consulting's services would be provided to Hero, rather than to TS2.
(c) It provided that during the contract's term, Scott would have the title of President and COO of "the Company."
The Amended Contractor Agreement defined Yokohama Ventures as "the Company." Defendants contend, however, that the Amended Contractor Agreement made Scott President and COO of Hero. We do not reach this issue.
(d) It eliminated the "termination for any other reason" provision, and stated instead as follows: "If [Yokohama Ventures] terminates the Agreement for convenience, then upon [DE Consulting's] and Scott's execution of a full release of claims in a form mutually satisfactory to Ron Scott and [Yokohama Ventures], (i) any balance of the Note will be forgiven, and (ii) [Yokohama Ventures] will pay to [DE Consulting] the Severance Payment within 30 days after the date of termination."
Except as specifically provided in the Amended Contractor Agreement, the Contractor Agreement remained in full force and effect. Accordingly, as relevant to this appeal, disputes "relating to this Agreement" remained subject to the exclusive jurisdiction of the state and federal courts in Los Angeles County.
3. Employment Agreement
The same day that the parties entered into the Amended Contractor Agreement, TS2, through Iyadomi, and Scott entered into an employment agreement (Employment Agreement). The Employment Agreement provided that effective January 1, 2018, Scott would be TS2's president and COO, and would receive a salary, equity incentive units, and performance bonuses. It further provided that Scott's employment was at-will, but that if TS2 "terminates your employment for convenience then upon your execution of a full release of claims in a form mutually satisfactory to you and [TS2], (i) any balance of the $100,000 . . . promissory note . . . will be forgiven, (ii) any unvested Equity and SaaS Transaction Bonus will accelerate in full, and (iii) [TS2] will pay you [a] Severance Payment within 30 days after the date of termination."
The Employment Agreement contained an arbitration provision, which stated that "any and all claims . . . arising out of or relating to this Agreement, your employment with [TS2], or otherwise arising between you or the [TS2], will be settled by final and binding arbitration." It further provided that the agreement "shall be governed by the law of the state of California."
D. The Operative Complaint
The relationship between the parties deteriorated, and Scott and DE Consulting were terminated in November 2018. Scott and DE Consulting filed the present action on June 24, 2020, and filed the operative second amended complaint (complaint) against Yokohama Ventures, Hero, TS2, Rize, Iyadomi, and Falzone on December 14, 2020.
The complaint alleged that Scott successfully managed TS2 and acquired the assets of at least three additional companies, including Hero, which were integrated into TS2. However, in June 2018, Iyadomi retained defendant Falzone, a consultant, as her business advisor. Falzone "secretly got Iyadomi to change from her acquisition-based business strategy to a new and different business strategy to be developed by Falzone and his entities." Accordingly, Falzone, Iyadomi, and Yokohama Ventures "secretly worked together to undermine and ultimately destroy TS2's business in favor of a competing enterprise." In furtherance of this scheme, Iyadomi created a new entity, Rize, which she owned and controlled. Iyadomi and her codefendants "unlawfully diverted and siphoned TS2's funds, cash, assets, and other property to [Rize] . . . for [defendants'] own personal benefit or the benefit of others at the expense of TS2 and its members, including [Scott]."
In November 2018, Iyadomi terminated Scott and DE Consulting. Iyadomi advised Scott during his termination meeting that he was no longer needed because she had decided to change business strategies. This termination accelerated the vesting of Scott's interest in TS2 and gave Scott and DE Consulting the right to severance payments under the Amended Contractor Agreement and Employment Agreement; however, defendant refused to pay Scott the severance payments and bonuses to which he was entitled. Further, defendants dissolved Hero and caused TS2 to cease operations.
The operative complaint asserted 14 causes of action alleging contact, tort, and shareholder claims against the various defendants, as described more fully below.
E. Defendants' Motion to Compel Arbitration
In January 21, 2021, Iyadomi, Yokohama Ventures, TS2, Hero, and Rize filed a motion to compel arbitration. These defendants asserted that each of Scott's contract, tort, and shareholder claims concerned the parties' rights and obligations under the TS2 Operating Agreement, and thus each was subject to that agreement's arbitration clause. In the alternative, defendants asserted that Scott's contract and tort claims were arbitrable under the Employment Agreement, and DE Consulting's claims were also subject to arbitration because they relied on, made reference to, or were intertwined with Scott's arbitrable claims.
Falzone was not a party to the motion to compel, and plaintiffs represent that he opposes arbitration.
On April 23, 2021, the trial court granted in part and denied in part the motion to compel arbitration, as follows:
Cause of action
Allegations of complaint
Ruling on motion to compel arbitration
Breach of Amended Contractor Agreement/breach of implied covenant (first and second causes of action)-by DE Consulting Group against Yokohama Ventures and Hero
Yokohama Ventures and Hero breached the Amended Contractor Agreement by terminating DE Consulting for convenience, but failing to forgive the balance of the $100,000 promissory note or pay a severance payment.
Denied. DE Consulting, as a nonparty to TS2's Operating Agreement, cannot be ordered to arbitrate claims thereunder. The fact that DE Consulting's claims against Yokohama Ventures and Hero under the Amended Contractor Agreement may be parallel to Scott's claims under other agreements is insufficient to compel DE Consulting's claims to arbitration.
Breach of Employment Agreement/breach of implied covenant (fourth and fifth causes of action)-by Scott against TS2
The Employment Agreement provided that if Scott were terminated for convenience, he would be paid a severance payment and bonuses, and his equity interest in TS2 would fully vest. TS2 breached the Employment Agreement by terminating Scott for convenience but failing to pay a severance payment and bonuses or to confirm Scott's vested equity interest in TS2.
Granted. Scott's claims arise under the Employment Agreement, which contains a clause requiring arbitration of “any and all claims or controversies . . . arising out of or relating to this Agreement, your employment with the Company, or otherwise arising between you and the Company.”
Intentional interference with contractual relations, and negligent and intentional interference with prospective economic advantage (sixth, seventh, and fifteenth causes of action)-by Scott and DE Consulting against Iyadomi, Yokohama Ventures, Hero, Rize, and Falzone
DE Consulting had an enforceable contract and an economic relationship with Yokohama Ventures and Hero, and Scott had an enforceable contract and an economic relationship with TS2. Yokohama Ventures, Rize, Iyadomi, and Falzone induced TS2 to breach the Employment Agreement and disrupt the relationship between Scott and TS2; and TS2, Iyadomi, and Falzone induced Yokohama Ventures and Hero to breach the Amended Contractor Agreement and disrupt the relationship between DE Consulting, Yokohama Ventures, and Hero.
Denied. There is no arbitration clause between plaintiffs and defendants whereby any of them agreed to arbitrate tort claims relative to interference with the Amended Contractor Agreement between DE Consulting and Yokohama Ventures/Hero, or the TS2 Operating Agreement between Scott and TS2, or any future economic relationships.
Breach of fiduciary duty (eighth cause of action)-by Scott individually and derivatively against Iyadomi
Iyadomi, as manager, CEO, and controlling member of TS2, owed TS2 and its minority members a duty of good faith and loyalty. In breach of that duty, Iyadomi failed to support TS2's business, caused TS2 and Hero to turn over assets to Rize without adequate compensation, and drove TS2 and Hero out of business.
Granted. Iyadomi's fiduciary duties to TS2 as manager, CEO, and controlling member were created by the TS2 Operating Agreement; thus, the breach of fiduciary duty claim “aris[es] out of or relat[es] to” the Operating Agreement.
Unjust enrichment (ninth cause of action) -by Scott individually and derivatively against Iyadomi, Yokohama Ventures, Rize, and Falzone
By their wrongful conduct and breaches of fiduciary duty, Iyadomi, Yokohama Ventures, Rize, and Falzone were unjustly enriched to the detriment of TS2 and its minority members. Scott seeks restitution and an order disgorging all money and assets wrongfully obtained.
Denied. The unjust enrichment claim exists as a matter of common law, and could have been brought even if the Operating Agreement did not exist. Thus, it is not subject to the Operating Agreement's arbitration clause.
Corporate waste (tenth cause of action)-by Scott individually and derivatively against Iyadomi and Yokohama Ventures
Iyadomi looted TS2 and used assets belonging to TS2 to support her competing business, Rize, and to work on behalf of Rize while acting as the CEO of TS2.
Granted. The claim for corporate waste depends on the existence of the TS2 Operating Agreement, which establishes the relationship between TS2 and Iyadomi. Further, nonsignatory Yokohama Ventures may enforce the Operating Agreement's arbitration clause against Scott, a signatory, because the claim for waste alleges “interdependent and concerted misconduct” between Iyadomi and Yokohama Ventures. Thus, the claim is arbitrable under the Operating Agreement.
Theft of corporate assets (eleventh cause of action)-by Scott individually and derivatively against Iyadomi, Yokohama Ventures, Rize, and Falzone
Defendants looted TS2's assets, including its computer software and business strategy, and caused TS2 to cease doing business in favor of Rize. As a result of this wrongful conduct, TS2 has and will incur millions of dollars of debt, lost corporate assets, lost financing, lost profits, lost corporate opportunities, and other monetary losses.
Denied. The claim for theft of corporate assets does not depend on the existence of the Operating Agreement, but instead on a set of rights and obligations that are independent of any contract. It thus could have been brought even if the Operating Agreement did not exist, and therefore is not arbitrable under the Operating Agreement.
Constructive trust (twelfth cause of action)-by Scott derivatively against Iyadomi, Yokohama Ventures, Hero, Rize, and Falzone
As a result of defendants' wrongful conduct, TS2 has been wrongfully deprived of its assets, resources, and revenue. Scott is entitled to impose a constructive trust over the looted assets.
Denied. A constructive trust is a remedy, not a cause of action, and depends on a set of rights and obligations that are independent of any contract. It thus could have been brought even if the Operating Agreement did not exist.
Accounting (thirteenth cause of action)-by Scott individually and derivatively against Yokohama Ventures, Iyadomi, and Rize
Iyadomi and Yokohama Ventures owed fiduciary duties to Scott and TS2. Defendants misappropriated and converted TS2's property and assets, as described above. An accounting of defendants' financial records is necessary to determine the extent of the misappropriated and looted assets.
Granted. Under Delaware law, an accounting is an equitable remedy involving the wrongdoing of a fiduciary. Because the breach of fiduciary duty claim is arbitrable, the accounting claim, which relies on the existence of a fiduciary relationship, is also arbitrable.
Accounting fourteenth cause of action)-by Scott individually and derivatively against TS2 and Hero
Iyadomi and Yokohama Ventures owed fiduciary duties to Scott and TS2. Defendants misappropriated and converted TS2's property and assets, as described above. An accounting of defendants' financial records is necessary to determine the extent of the misappropriated and looted assets.
Denied. Under Delaware law, an accounting is available only for breach of a fiduciary duty. Neither TS2 nor Hero is alleged to owe Scott a fiduciary duty, and neither is alleged to have acted in concert with the other defendants. Thus, the accounting claim depends on obligations that are independent of the Operating Agreement.
On the basis of the foregoing, the trial court ordered the causes of action for breach of the Employment Agreement, breach of fiduciary duty, corporate waste, and accounting (fourth, fifth, eighth, tenth, and thirteenth causes of action) to arbitration, and ordered the remainder of the case stayed pursuant to Code of Civil Procedure section 1281.4. Defendants timely appealed from the order to the extent that it denied the motion to compel arbitration.
Code of Civil Procedure section 1281.4 provides: "If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies."
Following the court's order, plaintiffs voluntarily dismissed without prejudice the derivative claims that had been ordered to arbitration, i.e., the claims for breach of fiduciary duty, corporate waste, and accounting (eighth, tenth, and thirteenth causes of action).
DISCUSSION
Defendants contend the trial court erred in failing to compel all of plaintiffs' claims to arbitration. They urge (1) all of Scott's "derivative" claims (i.e., those brought by Scott derivatively on behalf of TS2 and individually as a minority member of TS2) are arbitrable under the TS2 Operating Agreement; (2) Scott's tortious interference claims are arbitrable under the TS2 Operating Agreement and the Employment Agreement; and (3) DE Consulting's breach of contract and tortious interference claims are inextricably intertwined with Scott's claims, and thus are arbitrable under the TS2 Operating Agreement and the Employment Agreement. We consider these issues below.
I. Governing Law
An order denying a petition to compel arbitration is an appealable order. (Code Civ. Proc., § 1294, subd. (a).) When, as here, there is no conflicting extrinsic evidence introduced to aid interpretation, we independently review a party's challenge to the trial court's interpretation of an arbitration agreement. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890; Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 711.)
As noted above, two of the contracts at issue-the Contractor Agreement and Amended Contractor Agreement-do not contain arbitration clauses. The two other contracts at issue-the TS2 Operating Agreement and Employment Agreement-do contain arbitration clauses. The TS2 Operating Agreement is subject to Delaware law, and Employment Agreement is subject to California law. We therefore begin by describing arbitrability principles under Delaware and California law.
Contrary to plaintiffs' assertion, defendants satisfied their "threshold statutory burden" to establish the existence of an enforceable arbitration agreement by asserting that all claims between the parties are subject to the arbitration provisions of the TS2 Operating Agreement and the Employment Agreement.
Under Delaware law, when the arbitrability of a claim is disputed, "the court is faced with two issues. First, the court must determine whether the arbitration clause is broad or narrow in scope. Second, the court must apply the relevant scope of the provision to the asserted legal claim to determine whether the claim falls within the scope of the contractual provisions that require arbitration. If the court is evaluating a narrow arbitration clause, it will ask if the cause of action pursued in court directly relates to a right in the contract. If the arbitration clause is broad in scope, the court will defer to arbitration on any issues that touch on contract rights or contract performance." (Parfi Holding AB v. Mirror Image Internet, Inc. (Del. 2002) 817 A.2d 149, 155 (Parfi), fns. omitted.)
"When parties to an agreement decide that they will submit their claims to arbitration, Delaware courts strive to honor the reasonable expectations of the parties and ordinarily resolve any doubt as to arbitrability in favor of arbitration. Nevertheless, arbitration is a mechanism of dispute resolution created by contract. An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forward in the underlying agreement. Thus, arbitration clauses should be applied only to claims that bear on the duties and obligations under the Agreement." (Parfi, supra, 817 A.2d at pp. 155-156, italics added, fns. omitted.) Claims "do not touch matters implicated in a contract" if they could be brought even in the absence of a contract. (Id. at p. 156, fn. 24.)
Further, a party need not arbitrate a claim not otherwise subject to arbitration merely because it arises from "some or all of the same facts" as other arbitrable claims. (Parfi, supra, 817 A.2d at pp. 156-157.) Instead, where claims are alleged to be subject to arbitration because they relate to other arbitrable claims, a court must consider "the similarity of the separate rights" on which claims are based "rather than the similarity of the conduct" that led to those claims. (Parfi, supra, 817 A.2d at p. 156.)
California arbitration law is in accord. Under California law, "a strong public policy favors arbitration and seeks to ensure' "private agreements to arbitrate are enforced according to their terms."' [Citations.] However, '" 'there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate . . . .'" '" (Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 548.) Thus," '" a party cannot be required to submit to arbitration any dispute which he [or she] has not agreed so to submit." '" (Ibid.)
"' "Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it." '" (Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 675 (Pillar); JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237 (JSM Tuscany).) There are, however, some limited exceptions to this general rule, including that a nonsignatory plaintiff may be equitably 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.'" (Pillar, at p. 677.) As one court has explained, under the doctrine of equitable estoppel," 'a signatory of an arbitration clause may be compelled to arbitrate against a nonsignatory when the relevant causes of action rely on and presume the existence of the contract containing the arbitration provision. [Citation.] In other words, a plaintiff who relies on the contractual terms in a claim against a nonsignatory may be precluded from repudiating the arbitration clause in the contract.'" (JSM Tuscany, at p. 1237.) As under Delaware law, however, a signatory cannot be compelled to arbitrate a dispute with a nonsignatory merely because the facts of that dispute are factually intertwined with an arbitrable dispute. (Id. at pp. 1237-1244.)
II. Scott's Derivative Claims (Unjust Enrichment, Theft of Corporate Assets, Constructive Trust, and Accounting)
Defendants contend that Scott's derivative claims (for unjust enrichment, theft of corporate assets, constructive trust, and accounting) are arbitrable under the TS2 Operating Agreement, which requires arbitration of "[a]ny unresolved controversy or claim arising out of or relating to this [Operating] Agreement." The TS2 Operating Agreement is, by its own terms, subject to Delaware law, and thus the derivative claims are arbitrable, if at all, under Delaware arbitration principles.
A. Unjust Enrichment and Theft of Corporate Assets (Ninth and Eleventh Causes of Action)
The causes of action of action for unjust enrichment and theft of corporate assets are asserted by Scott, individually and derivatively, against Iyadomi, Yokohama Ventures, Rize, and Falzone. The unjust enrichment claim alleges that defendants were enriched by their wrongful conduct and breaches of fiduciary duty, to the detriment of TS2 and its minority members. The theft of corporate assets claim alleges that defendants looted TS2's assets, including its computer software and business strategy, and caused TS2 to cease doing business.
Defendants urge that the unjust enrichment and theft of corporate assets claims allege that Iyadomi breached fiduciary duties to TS2, and thus both claims "aris[e] out of or relat[e] to" the TS2 Operating Agreement, which defines Iyadomi's fiduciary duties to TS2. Scott disagrees, contending that his claims for unjust enrichment and theft of corporate assets "arise in the absence of a contract and do[] not touch on any contract right." In support, he notes that the unjust enrichment and theft claims are made against some defendants who are not parties to the Operating Agreement; further, he "can and did allege [these] claim[s] without any reference to the [Operating Agreement]" and thus "none of the allegations depend on the existence of . . . the [Operating Agreement]." Scott thus urges that his unjust enrichment and theft claims are not subject to arbitration.
The Operating Agreement's arbitration clause, which applies to "[a]ny unresolved controversy or claim arising out of or relating to this Agreement," is unquestionably broad in scope. (See Parfi, supra, 817 A.2d at p. 155 [clause compelling arbitration of" 'any dispute, controversy, or claim arising out of or in connection with'" an agreement held to have a broad scope].) Accordingly, we must "defer to arbitration on any issues that touch on contract rights or contract performance." (Ibid.)
We agree with defendants that Scott's unjust enrichment and theft claims against Iyadomi, a TS2 manager and member, are subject to arbitration under the TS2 Operating Agreement.Both Iyadomi and Scott signed joinders to the Operating Agreement, by which each "acknowledges that [he or she has] read the Operating Agreement and agrees to become a party thereto and shall hereafter observe and be bound by, and shall have the benefit of, all of the terms, conditions, and restrictions set forth in the Operating Agreement." As defendants correctly note, the TS2 Operating Agreement defines the fiduciary duties owed among and between the members and manager, and it specifically disclaims certain duties to the extent permitted by law. The Operating Agreement also purports to limit the liability of members and managers to acts or omissions constituting gross negligence, willful misconduct, or breaches of the Operating Agreement. Scott's claims against Iyadomi for unjust enrichment and theft of corporate assets therefore will require a trier of fact to determine whether Iyadomi's acts were permissible under the Operating Agreement and, if not, whether they are within the terms of the exculpation clause. Adjudicating these claims against Iyadomi thus will require interpreting and applying the Operating Agreement, and as such, these claims "aris[e] from or relat[e] to" the Operating Agreement.
Because an unjust enrichment claim is premised on the absence of a contract, we are uncertain how such a claim can exist between Scott and Iyadomi, each of whom is a signatory to the Operating Agreement. Nonetheless, if such claim does exist between these parties, it necessarily relates to the Operating Agreement and, thus, is subject to arbitration.
Scott contends that his derivative claims against Iyadomi do not arise under or relate to the Operating Agreement because the complaint does not allege that Iyadomi breached any fiduciary duties created by the Operating Agreement and, in any event, he "has dismissed [the eighth cause of action] for breach of fiduciary duty against Iyadomi and is no longer pursuing any claim or allegations incorporating that claim." This contention is without merit. In Douzinas v. American Bureau of Shipping, Inc. (Del. Ch. 2006) 888 A.2d 1146, 1149-1150 (Douzinas), the Delaware Chancery Court explained that Delaware's Limited Liability Company Act and Limited Partnership Act "permit the contracting parties to expand or restrict 'the member's or manager's or other person's duties [including fiduciary duties] and liabilities . . . in a limited liability company agreement.'" As a result, the court explained, in the alternative entity context "it is frequently impossible to decide fiduciary duty claims without close examination and interpretation of the governing instrument of the entity giving rise to what would be, under default law, a fiduciary relationship." (Ibid.) Applying that analysis to the case before it, the Douzinas court concluded that claims brought by an LLC's minority member against a majority member were subject to arbitration under the LLC's governing agreement because that agreement specifically defined the members' powers and duties and purported to limit the members' liability to one another. (Id. at pp. 1151-1152.) Accordingly, even though the minority shareholder's pleadings did not purport to rely on the LLC's governing agreement, the merits of its claims could not be adjudicated without reference to the LLC agreement. (Id. at pp. 1150-152.)
The present case is analogous. Even though Scott's unjust enrichment and theft claims against Iyadomi do not expressly reference or rely on the Operating Agreement, they do allege that Iyadomi engaged in "ongoing wrongful conduct and breach of fiduciary duties," including misappropriating TS2's assets, investing TS2's assets in Rize, and making payments to Rize and Falzone. Because these claims cannot be evaluated without reference to Iyadomi's rights and duties to TS2 as defined by the Operating Agreement, they necessarily arise under and relate to that agreement. They thus are subject to arbitration under the Operating Agreement.
We reach a different conclusion with regard to Scott's unjust enrichment and theft of corporate assets claims against Yokohama Ventures, Rize, and Falzone. "Generally, only parties to a contract and intended third-party beneficiaries may enforce or be bound by that agreement's provisions, whereas 'a nonparty to a contract has no legal right to enforce it.'" (Kuroda v. SPJS Holdings, L.L.C. (Del. Ch., Nov. 30, 2010) 2010 WL 4880659, at *3 (Kuroda); see also NAMA Holdings, LLC v. Related World Market Center, LLC (Del. Ch. 2007) 922 A.2d 417, 434 [same].) Here, Yokohama Ventures, Rize, and Falzone were not signatories to the Operating Agreement, and they have not suggested a theory by which they could be deemed third party beneficiaries of that agreement. Accordingly, we perceive no basis on which Scott's unjust enrichment and theft claims against them could be subject to arbitration under the Operating Agreement's arbitration clause.
Defendants contend that Scott's claims against Yokohama Ventures, Rize, and Falzone should be deemed to arise under or relate to the Operating Agreement under the principles articulated by the Delaware Supreme Court in Elf Atochem North America, Inc. v. Jaffari (Del. 1999) 727 A.2d 286 (Elf), but we do not agree. Elf concerned a dispute between plaintiff Elf and defendant Jaffari, who jointly created Malek LLC (the LLC), a Delaware limited liability company. The parties entered into a series of agreements governing their venture, including (1) an LLC agreement, signed by Elf and Jaffari, which set forth how the LLC would be governed, and (2) an exclusive distributor agreement between Elf and the LLC, which provided that Elf would be the exclusive distributor of the LLC's products. The LLC agreement contained a broad arbitration clause, which required arbitration of" 'any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action of any Member or Manager, '" and a forum selection clause, which provided that all members consented to the" 'exclusive jurisdiction of the state and federal courts sitting in California in any action on a claim arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement.'" (Id. at pp. 288-289.) The distribution agreement did not contain an arbitration or forum selection clause. (Id. at p. 289.)
The relationship between the parties deteriorated, and Elf sued Jaffari and the LLC, individually and derivatively, for breach of fiduciary duty, breach of contract, tortious interference with prospective business relations, and fraud. The Court of Chancery granted the defendants' motion to dismiss, finding that under the LCC agreement, Elf was required to bring all of its claims before a court or arbitrator in California. (Elf, supra, 727 A.2d at p. 289.) The Delaware Supreme Court affirmed. The court noted that the LLC agreement's dispute resolution clause was extraordinarily broad, covering claims "arising out of" and "in connection with" the agreement, as well as transactions" 'related to'" or" 'contemplated by'" the agreement. (Id. at p. 294.) That clause thus was dispositive of all of Elf's claims, even those that purported to be under the distributorship agreement, which had no choice-of-forum provision. The court explained: "Notwithstanding the fact that the Distributorship Agreement is a separate document, in reality those counts are all subsumed under the rubric of the of the [LLC agreement's] forum selection clause . . . [because] plaintiff's claims arise under the LLC Agreement or the transactions contemplated by the Agreement, and are directly related to Jaffari's 'action or inaction' in connection with his role as the manager of Malek." (Id. at p. 294, italics added.)
There are significant differences between the present case and Elf, most significantly that the arbitration clause in the present case is much narrower than the dispute resolution clause in Elf. The dispute resolution clause in Elf was extremely broad, covering claims "arising out of" and "in connection with" the LLC agreement, as well as transactions" 'related to'" or" 'contemplated by'" that agreement. (Elf, supra, 727 A.2d at p. 294.) The arbitration clause in TS2's Operating Agreement is narrower, extending to claims "arising out of or related to" the agreement-but not also to transactions "contemplated by" the agreement. Because defendants have not articulated any way in which Scott's claims against Yokohama Ventures, Rize, and Falzone arise out or relate to the Operating Agreement, the trial court correctly concluded that these claims were not subject to arbitration.
Douzinas, supra, 888 A.2d 1146 does not compel a different result. There, an LLC's minority member sued the majority member and its affiliates, alleging that the majority member transferred to its affiliates software that belonged to the LLC. (Id. at pp. 1147-1148.) The majority member and affiliates moved to compel arbitration, urging that the minority shareholder's claims arose under the LLC Agreement, which governed the fiduciary duties between members. (Id. at p. 1150.) The Chancery Court agreed. As to the majority member, the court found that the LLC Agreement set forth the governance and operation of the parties' joint venture, and thus any person adjudicating the minority members' claims against the majority member "would be required to interpret various provisions of the LLC Agreement in order to fairly determine the breadth and nature of fiduciary duties, if any, owed by" the majority member. (Id. at p. 1152.) The court found these claims thus were subject to the LLC's arbitration clause. The court reached the same conclusion with regard to the affiliates, which were not members of the LLC. It explained: "The [minority members] may not press claims that involve identical factual contentions in two separate forums simply by sweeping into their complaint the [affiliates]. Under abundant authority, non-signatories are permitted to compel signatories to arbitrate disputes under a theory of equitable estoppel. One circumstance that frequently warrants such estoppel is 'when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.' That is the case here, and to refuse to compel arbitration for claims against the [affiliates] would render the arbitration between the signatories meaningless and thwart the state and federal policy in favor of arbitration." (Id. at p. 1153, fns. omitted.)
Although Douzinas facially supports defendants' contention that the unjust enrichment and theft claims against Yokohama Ventures, Rize, and Falzone are subject to arbitration, we conclude that this result is inconsistent with the Delaware Supreme Court's decision in Parfi, supra, 817 A.2d 149. In Parfi, a Delaware corporation entered into an Underwriting Agreement with the defendant, an investor, who agreed to provide capital to the corporation in exchange for a controlling share in the corporation. (Id. at p. 151.) The Underwriting Agreement contained an arbitration clause, which provided that any dispute, controversy, or claim" 'arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof, shall be settled by arbitration.'" (Id. at pp. 151-152.)
The relationship between the investor and the corporation soured, and the corporation's minority shareholders pursued claims against the investor in two separate forums. First, the shareholders initiated arbitration for breach of the Underwriting Agreement against the investor as a signatory to the agreement. Separately, the shareholders filed suit for breach of fiduciary duty against the investor in its capacity as controlling shareholder. (Parfi, supra, 817 A.2d at pp. 152-153.) The claims in both forums were based on the same essential facts-i.e., four transactions that had the effect of diluting the minority shareholders' interest in the corporation. (Ibid.) Arbitration proceeded on the contract claims; after the arbitration concluded, the Delaware Court of Chancery dismissed the shareholders' fiduciary duty claims, holding that the Underwriting Agreement's broad arbitration clause required arbitration of all of the corporation's claims. (Id. at p. 154.)
The Delaware Supreme Court reversed. It explained that although the Underwriting Agreement's arbitration clause had a broad scope, it nonetheless could "extend only so far as the series of obligations set forth in the underlying agreement." (Parfi, supra, 817 A.2d at p. 156.) In the case before it, the majority shareholder "cannot point to any contract term that creates a species of obligation upon which [the minority shareholders] can base a breach of fiduciary duty claim." (Id. at p. 159, italics added.) Accordingly, the fiduciary duty claims lay outside the scope of the Underwriting Agreement and were not subject to arbitration. (Ibid.)
In so concluding, the court acknowledged that the contract and fiduciary duty claims were factually intertwined, but it found that was not sufficient to subject the fiduciary duty claims to arbitration. It explained: "An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement. . . . [¶] . . . [¶] . . . The term 'arising out of or in connection with' must be considered in that light. The Court of Chancery should have concentrated on the similarity of the separate rights pursued by plaintiffs under both the contract and the independent fiduciary duties rather than the similarity of the conduct that led to potential claims for both the contract and fiduciary breaches of duty." (Parfi, supra, 817 A.2d at p. 156, fns. omitted.) By focusing on conduct, rather than rights, the lower court gave "far too expansive a meaning to" the contractual requirement to arbitrate all claims" 'arising out of or in connection with'" the Underwriting Agreement. (Id. at p. 157.)
Parfi makes clear that under Delaware law, a party cannot be compelled to arbitrate claims that are not within an arbitration agreement's plain language merely because they are factually intertwined with other arbitrable claims. Instead, claims are arbitrable only if they are made so by the express language of an arbitration clause. To compel a claim to arbitration under a contract containing an arbitration clause, therefore, a defendant must "point to [a] contract term that creates a species of obligation" on which the claim may be based. (Parfi, supra, 817 A.2d at p. 158.)
In the present case, as in Parfi, defendants have not identified any term in the Operating Agreement that allegedly gives rise to Scott's claims against Yokohama Ventures, Rize, and Falzone for unjust enrichment or theft. Instead, as in Parfi, they urge that these claims are arbitrable because they are factually intertwined with other arbitrable claims. Under Parfi, however, common facts are insufficient to compel arbitration of claims that do not themselves arise under a contract containing an arbitration clause. Accordingly, the trial court did not err in denying the motion to compel arbitration of Scott's unjust enrichment and theft claims against Yokohama Ventures, Rize, and Falzone.
B. Constructive Trust and Accounting (Twelfth and Fourteenth Causes of Action)
Scott's twelfth cause of action purports to assert a claim for a constructive trust, and his fourteenth cause of action purports to assert a claim for an accounting. Defendants contend these claims are subject to arbitration under the TS2 Operating Agreement because they are "brought on behalf of TS2 and [are] based on allegations that Iyadomi and other defendants 'wrongfully deprived' TS2 and its members of its assets." As a result, defendants urge, the claims "clearly 'touch[] on contract rights' in the TS2 [Operating Agreement]."
As the trial court correctly noted, under Delaware law a constructive trust and an accounting are equitable remedies, not separate causes of action. (E.g., Teachers' Retirement System v. Aidinoff (Del. Ch. 2006) 900 A.2d 654, 670 ["court cannot impose the remedy of a constructive trust against a party unless that party is properly subject to an order of relief under a recognized cause of action"]; RCS Creditor Trust v. Schorsch (Del. Ch. Apr. 5, 2018) 2018 WL 1640169, at *8 ["A constructive trust is not itself a cause of action, however; instead, it is an equitable remedy"]; VTB Bank v. Navitron Projects Corp. (Del. Ch. Apr. 28, 2014) 2014 WL 1691250, at *6, fn. 60 ["Under Delaware law, a constructive trust is a remedy, not a substantive cause of action"]; DG BF, LLC v. Ray (Del. Ch. Mar. 1, 2021) 2021 WL 776742, at *28 ["equitable accounting is a remedy, not a cause of action"]; Menacker v. Overture, L.L.C. (Del. Ch. Aug. 4, 2020) 2020 WL 4463438, at *9 [accounting "is an equitable remedy rather than a cause of action"].) We are not aware of any authority for the proposition that a court can compel arbitration of a remedy without regard to the cause of action to which it relates.
Accordingly, the trial court did not err in denying the motion to compel arbitration of these purported claims.
By so concluding, we do not suggest that an arbitrator lacks authority to order a constructive trust or accounting, as appropriate, in connection with arbitrable causes of action.
III. Scott's Claims for Tortious Interference with the Employment Agreement and with Scott's Economic Relationship with TS2
A. Background
The Employment Agreement, to which Scott and TS2 were the sole parties, governed Scott's employment relationship with TS2. It provided that Scott would be TS2's president and COO, and would receive a salary, equity incentive units, and performance bonuses. It further provided that Scott's employment was at will, but that if TS2 "terminates your employment for convenience then upon your execution of a full release of claims in a form mutually satisfactory to you and [TS2], (i) any balance of the $100,000 . . . promissory note . . . will be forgiven, (ii) any unvested Equity and SaaS Transaction Bonus will accelerate in full, and (iii) [TS2] will pay you [a] Severance Payment within 30 days after the date of termination." Finally, the Employment Agreement provided that it is governed by California law, and that "any and all claims or controversies whatsoever brought by either you or [TS2] arising out of or relating to this Agreement, your employment with [TS2], or otherwise arising between you or [TS2], will be settled by final and binding arbitration."
The sixth, seventh, and fifteenth causes of action allege that Iyadomi, Yokohama Ventures, Hero, Rize, and Falzone, who were not parties to the Employment Agreement, interfered with that agreement and with Scott's economic relationship with TS2.Specifically, the sixth cause of action for tortious interference with contract alleges that defendants "intentionally induced TS2 to breach the [Employment Agreement] and related contracts with TS2 to ensure Scott's termination and to prevent Scott from receiving compensation and other significant benefits owed to him under these contracts." The seventh and fifteenth causes of action for tortious interference with prospective economic relationship allege that defendants interfered with the relationship between Scott and TS2, which likely would have resulted in future economic benefits to Scott, by looting and destroying TS2.
These causes of action also allege tortious interference with the Amended Contractor Agreement and with the economic relationship between DE Consulting and Hero. For clarity, we discuss that aspect of these claims in the next section, post.
The complaint also alleged causes of action by Scott and against TS2 for breach of the Employment Agreement (fourth and fifth causes of action). The trial court found these claims were arbitrable under the terms of the Employment Agreement's arbitration clause, and no party challenges that finding on appeal.
B. Scott's Tortious Interference Claims Are Arbitrable Against Iyadomi Only
Defendants contend that Scott's tortious interference claims are subject to arbitration under the TS2 Operating Agreement because they "touch on contract rights" covered by the Operating Agreement-namely, Scott's right to an equity interest in TS2, and Iyadomi's obligations to TS2 under the TS2 Operating Agreement. Alternatively, defendants urge that Scott's tortious interference claims should be compelled to arbitration under the Employment Agreement because they" 'relat[e] to'" the Employment Agreement, and more broadly, to Scott's employment with TS2. As we discuss, we conclude that Scott's tortious interference claims are arbitrable as against Iyadomi, but are not arbitrable as against the other defendants.
1. Scott's Claims Against Iyadomi
Defendants contend that Scott's tort claims against Iyadomi are arbitrable because they "touch on contract rights" in the TS2 Operating Agreement, to which Scott and Iyadomi both agreed to be bound. Specifically, defendants urge that the Operating Agreement defines Iyadomi's rights and duties as manager to oversee the affairs of TS2 and contains a broad exculpatory provision, which prevents the imposition of liability on Iyadomi absent breach of the Operating Agreement, gross negligence, or willful misconduct. Defendants additionally urge that the TS2 Operating Agreement gives Iyadomi, as manager, discretion to designate and remove officers and to designate the titles and duties of such officers.
Scott urges that his tort claims against Iyadomi do not arise out of or relate to the Operating Agreement because they arise entirely from common law rights and do not depend on the existence of the Operating Agreement. According to Scott, his claims against Iyadomi assert that she committed tortious acts "in her individual capacity and as controlling member and director of Yokohama [Ventures], Rize and TS2," not "in her role as manager of TS2." Further, he says, the seventh and fifteenth causes of action pertain to prospective economic relationships, "which by nature are independent of the [Operating Agreement]."
We conclude that Scott's tort claims against Iyadomi are subject to arbitration under the arbitration clause of the Employment Agreement. Although Iyadomi was not a party to the Employment Agreement, the complaint alleges Iyadomi was the sole director of TS2, which was a party to that agreement. Since TS2 could act only through its principals, Iyadomi's actions were effectively the actions of TS2. Accordingly, Iyadomi's alleged interference with the Employment Agreement and Scott's economic relationship with TS2 necessarily "ar[ose] out of or relat[ed] to" both the Employment Agreement and Scott's employment with TS2.
Scott's tort claims against Iyadomi also are subject to arbitration under the arbitration provisions of the TS2 Operating Agreement. As discussed above, the Operating Agreement defined the fiduciary duties owed among and between the members and manager, and it specifically disclaimed certain duties to the extent permitted by law. The Operating Agreement also purported to limit the liability of members and managers to acts or omissions constituting gross negligence, willful misconduct, or breaches of the Operating Agreement. Under these circumstances, adjudicating the merits of a claim between Scott and Iyadomi, who was both a TS2 member and manager, necessarily will require interpreting and applying TS2's Operating Agreement.
2. Scott's Claims Against the Other Defendants
We reach a different conclusion with regard to Scott's tortious interference claims against Yokohama Ventures, Hero, Rize, and Falzone. None of these defendants was a party to the Employment Agreement, and none is alleged to have controlled TS2. Further, nothing in the Employment Agreement purported to create any obligations between Scott, on the one hand, and Yokohama Ventures, Hero, Rize, or Falzone, on the other. Instead, the Employment Agreement outlines only the rights and duties of Scott and TS2 to each other. Accordingly, we perceive no basis on which Scott's tortious interference claims against Yokohama Ventures, Hero, Rize, and Falzone could "aris[e] out of or relat[e] to" the Employment Agreement or to Scott's employment with TS2.
We similarly conclude that Scott's tortious interference claims against Yokohama Ventures, Hero, Rize, and Falzone are not arbitrable under the TS2 Operating Agreement. As we have said, none of these defendants was a signatory to the Operating Agreement, and we are not aware of any provision of the Operating Agreement that governed rights and duties between Scott, on the one hand, and Yokohama Ventures, Hero, Rize, and Falzone, on the other. Accordingly, Scott's tortious interference claims against these defendants do not "arise[e] out of or relat[e]" to TS2's Operating Agreement.
IV. DE Consulting's Claims for Breach of and Interference with the Amended Contractor Agreement
A. Background
The Amended Contractor Agreement governed the contracting relationship between DE Consulting and Hero. It was entered into between Scott and DE Consulting, on the one hand, and Yokohama Ventures, TS2, and Hero, on the other, and it stated that DE Consulting would provide services to Hero for a term of five years, in exchange for various categories of compensation.
The first and second causes of action assert claims by DE Consulting against Yokohama Ventures and Hero for breach of express and implied terms of the Amended Contractor Agreement. These causes of action allege that under the Amended Contractor Agreement, DE Consulting was entitled to severance benefits, including forgiveness of a $100,000 promissory note, if the agreement was terminated "for convenience" prior to the end of the five-year contract term. DE Consulting allegedly was terminated for convenience in November 2018, but Yokohama Ventures and Hero breached the Amended Contractor Agreement by failing to timely make severance payments or to confirm that the balance of the $100,000 note had been forgiven.
The sixth, seventh, and fifteenth causes of action assert claims by DE Consulting against Iyadomi, Yokohama Ventures, Hero, Rize, and Falzone for tortious interference with the Amended Contractor Agreement and the economic relationship between DE Consulting and Hero. These causes of action allege that defendants interfered with the Amended Contractor Agreement by directing its termination and looting and destroying Hero.
B. DE Consulting's Claims Are Not Arbitrable
It is undisputed that the Amended Contractor Agreement does not contain an arbitration clause; to the contrary, it provides that in any dispute "relating to this Agreement, the parties hereto . . . submit themselves to the exclusive jurisdiction of the state or federal courts located in Los Angeles County, California." (Italics added.) Defendants contend, however, that DE Consulting's claims for breach of and interference with the Amended Contractor Agreement are arbitrable because they are inextricably intertwined with Scott's claims under (1) the TS2 Operating Agreement, and (2) the Employment Agreement, both of which contain arbitration clauses. For the reasons that follow, we reject both contentions.
TS2 Operating Agreement. Defendants do not contend that DE Consulting is a signatory to the TS2 Operating Agreement or that any of DE Consulting's claims assert breaches of the Operating Agreement. They suggest however, that DE Consulting should be compelled to arbitrate its breach of contract and tortious interference claims because they are "founded in and inextricably intertwined with" Scott's arbitrable claims under the Operating Agreement. In other words, defendants urge that given the substantial overlap between the claims asserted by DE Consulting and Scott, principles of equitable estoppel require that DE Consulting be compelled to arbitrate its claims pursuant to the arbitration clause of TS2's Operating Agreement.
As we have discussed, a cause of action is not subject to arbitration under Delaware law merely because it is factually intertwined with an arbitrable claim-instead, a contractual arbitration clause can be applied "only to claims that bear on the duties and obligations under the Agreement." (Parfi, supra, 817 A.2d at pp. 156-157.) In the present case, DE Consulting is not a signatory to the Operating Agreement, and defendants have not identified any provision of the TS2 Operating Agreement that arguably creates any obligations alleged to give rise to DE Consulting's claims against Iyadomi, Yokohama Ventures, Hero, Rize, or Falzone. Nor can we conceive of any way in which DE Consulting's claims for breach of or interference with the Amended Contractor Agreement, which governed its relationship with Hero, could arise out of or relate to the TS2 Operating Agreement, which governed the management and operations of TS2. Accordingly, DE Consulting's claims are not arbitrable under the TS2 Operating Agreement.
Employment Agreement. We reach a similar conclusion with regard to defendants' assertion that DE Consulting's breach of contract and tortious interference claims are arbitrable under the Employment Agreement. That agreement, to which TS2 and Scott are the only parties, governed Scott's employment relationship with TS2, and required arbitration under California law of "any of all claims or controversies whatsoever brought by either [Scott] or [TS2] arising out of or relating to this Agreement, [Scott's] employment with [TS2], or otherwise arising between [Scott] and [TS2]."
By its plain language, the Employment Agreement's arbitration clause does not cover DE Consulting's claims, which are not "brought by either [Scott] or [TS2]." Further, as noted above, under California law, "' "[g]enerally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it." '" (Pillar, supra, 64 Cal.App.5th at p. 675; JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237 (JSM Tuscany).) There are some limited exceptions to this general rule, including that a nonsignatory plaintiff may be equitably estopped from refusing to arbitrate if it asserts claims that are"' "dependent upon, or inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause.'" (Pillar, at p. 677.) In the present case, however, defendants have not persuasively identified any way in which DE Consulting's claims for breach of and interference with the Amended Contractor Agreement, which governs the contractual relationship between DE Consulting and Hero, depends on or is intertwined with the Employment Agreement, which governs the contractual relationship between Scott and TS2.
Defendants' sole contention with regard to this issue is that DE Consulting's claims under the Amended Contractor Agreement are inextricably intertwined with Scott's claims under the Employment Agreement because "Scott's performance as President and COO of TS2 will be directly relevant to whether Yokohama Ventures and Hero had grounds to terminate him for cause under the [Amended Contractor Agreement]." We do not agree. As we have said, California law, like Delaware law, requires more than common facts to require a plaintiff to submit to arbitration under an agreement it did not sign-the defendant must, at a minimum, demonstrate that the plaintiff's claims "rel[y] on . . . terms" of a contract that contains an arbitration clause. (JSM Tuscany, supra, 193 Cal.App.4th at p. 1239, italics added; c.f. Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 716 [claim against nonparty to contract containing arbitration clause held arbitrable because it "relies on and refers to" the contract].) Further, it is not apparent to us, and defendants do not explain, why Scott's performance as president and COO of TS2 would be relevant to whether there was cause to terminate DE Consulting's contractual relationship with Hero. We thus conclude that DE Consulting's claims are not arbitrable under the Employment Agreement.
DISPOSITION
The April 23, 2021 order is reversed to the extent that it denied defendants' motion to compel arbitration of the sixth, seventh, ninth, eleventh, and fifteenth causes of action as to defendant Iyadomi only. The order otherwise is affirmed. Each party shall bear its own costs.
We concur: EGERTON, J. LIPNER, J.[*]
[*] Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.