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Kyle Pulli v. Pony International

June 19, 2012

KYLE PULLI, PLAINTIFF AND RESPONDENT,
v.
PONY INTERNATIONAL, LLC, DEFENDANT AND APPELLANT.



APPEAL from an order of the Superior Court of San Diego County, Joan M. Lewis, Judge. Reversed. (Super. Ct. No. 37-2010-00098933-CU-WT-CTL)

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

I.

INTRODUCTION

Kyle Pulli filed this action against his former employer, appellant Pony International, LLC (Pony); two entities that allegedly established Pony, Symphony Holdings, Inc. (Symphony) and Infinity Associates, Inc. (Infinity); and an employment recruiting firm, Bialla and Associates, Inc. (Bialla). In his complaint, Pulli alleged that the defendants fraudulently induced him to enter into an employment agreement with Pony, and that Pony wrongfully terminated his employment.

Pony filed a motion to compel arbitration in which it argued that all of Pulli's claims against it were subject to an arbitration provision in Pulli's employment agreement. Pulli filed an opposition in which he contended, among other claims, that the employment agreement was unenforceable pursuant to Labor Code section 206.5,*fn1 which prohibits an employer from requiring an employee to execute "a release of a claim or right on account of wages due . . . ." The trial court denied Pony's motion to compel, concluding that the employment agreement was void under section 206.5 and that the arbitration provision contained in the employment agreement was therefore unenforceable.

On appeal, Pony contends that the trial court erred in failing to permit the arbitrator to determine whether section 206.5 rendered the arbitration provision in the employment agreement unenforceable. On the merits, Pony contends that the trial court erred in determining that the arbitration provision was unenforceable pursuant to section 206.5.

We conclude that Pony waived its right to have the arbitrator determine the section 206.5 issue. On the merits, we conclude that the arbitration provision is not unenforceable pursuant to section 206.5. Accordingly, we reverse the order denying the motion to compel.

II.

FACTUAL AND PROCEDURAL BACKGROUND

In August 2010, Pulli filed a complaint against the defendants. In his complaint, Pulli alleged that as of early 2007, he was employed by adidas International (adidas)*fn2 and was a "highly respected, award winning designer in the athletic footwear industry." Pulli alleged that in early 2007, the defendants promised him "that if he agreed to leave his career with adidas and relocated himself and his family to San Diego . . . he would be given a .75% equity interest in [Pony], that his base salary would be equivalent to what he was paid at adidas, that the position would last for 4 years or longer, [and] that [Pony] was extremely well capitalized and had the wherewithal to pay his compensation, produce his shoe designs and bring them to market." Pulli contended that these terms of employment were memorialized in a written employment offer letter dated April 26, 2007 (April 2007 Offer Letter). Pulli alleged that the day after he received the April 2007 Offer Letter, he resigned his position with adidas, and began working for Pony the following month.

Pulli further alleged that on October 30, 2007, Pony presented him with a "draconian new agreement [(October 2007 Agreement)] that essentially reneged on all of the agreements under which [Pulli] agreed to leave adidas and join [Pony]." Pulli also alleged that a Pony employee told Pulli "that [Pulli] either signed the [October 2007 Agreement] or he would never receive any equity in the company."

Pulli maintained that the October 2007 Agreement was void under section 206.5, as follows:

"On October 30, 2007, six months after [Pulli] had left adidas, moved his family from Portland, Oregon to San Diego and worked for months designing footwear, i.e. after [Pulli] had 'burned his bridges' and was locked in as an employee of [Pony], [Pony] presented [Pulli] with a new agreement regarding the promised .75% equity stake in [Pony]. The agreement was presented to [Pulli] by Rolleen Jones [Pony's controller] and told [sic] that either he signed the agreement or he would never receive any equity in the company. The contract itself so provided. At the time [Pulli] had been working for six months and his equity had been vesting for six months. Plaintiff was owed substantial equity in the company and he was told that he would forfeit that equity if he refused to sign. The [October 2007 Agreement] is void under California Labor Code section 206.5."

Pulli alleged that in August 2009, Pony arbitrarily reduced his annual salary by 12 percent, and that in September 2009, Pony terminated his employment summarily and without cause. Pulli also alleged that, upon his termination, Pony refused to pay him a performance incentive that he had earned and also refused to "transfer the .75% in equity" that he had earned.

In a cause of action for fraud against all of the defendants, Pulli alleged that the defendants fraudulently induced him into accepting the April 2007 offer and entering into the October 2007 Agreement. Pulli also brought claims against Pony for wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, unfair competition, and unjust enrichment and/or quantum meruit.

In November 2010, Pony filed a motion to compel arbitration. In its motion, Pony contended that the October 2007 Agreement contained an arbitration provision that required Pulli to arbitrate all of his claims against Pony. Pony noted that the arbitration provision states in relevant part:

"I agree that any and all controversies, claims, or disputes with anyone (includING the company and any employee, officer, director, shareholder, or benefit plan of the company, in their capacity as such or otherwise) . . . arising out of, relating to, or resulting from my employment with the company or the termination of my employment with the company, including any breach of this agreement, shall be subject to binding arbitration."

Pony claimed that Pulli was required to arbitrate his claims against the remaining defendants, as well, because Pulli had agreed to arbitrate claims against "anyone." Pony contended that the doctrine of equitable estoppel also required Pulli to arbitrate his claims against the remaining defendants. In the alternative, Pony requested that the trial court stay Pulli's action against the other defendants pending the outcome of the arbitration between Pulli and Pony.

Pulli filed an opposition to the motion to compel. In his opposition, Pulli contended that the October 2007 Agreement was "null and void" under section 206.5. Pulli maintained that Pony had threatened to withhold earned wages and equity compensation unless he signed the ...


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