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Mentor Capital, Inc. v. Bhang Chocolate Co., Inc.

United States District Court, N.D. California, San Francisco Division

November 19, 2014

MENTOR CAPITAL, INC., Plaintiff,
v.
BHANG CHOCOLATE CO., INC., BHANG CORPORATION, SCOTT VAN RIXEL, RICHARD SELLERS, and WILLIAM WAGGONER Defendants.

ORDER COMPELLING ARBITRATION AND STAYING CASE [Re: ECF No. 18]

LAUREL BEELER, Magistrate Judge.

INTRODUCTION

This case arises from a soured commercial-investment contract. The parties dispute neither the existence nor the terms of that contract. The contract has a clause providing that any party "may demand" the arbitration of "any dispute" between the parties. The court holds that, under that clause, this case must be sent to arbitration. The court therefore compels the parties to arbitrate this dispute. The court stays this lawsuit pending the outcome of the arbitration, and retains jurisdiction of this case to the limited extent that federal arbitration law permits it to do so. The court finds this matter suitable for disposition without a hearing under Civil Local Rule 7.1(b).

BACKGROUND

Plaintiff Mentor Capital, Inc. and defendant Bhang Corporation (formerly known as Bhang Chocolate Company, Inc.) entered into an investment contract. Under that contract, Mentor was to invest $39 million in Bhang. The money was to be disbursed to Bhang in certain amounts according to a certain schedule. In return, among other things, Bhang would sell Mentor a 60% ownership share in Bhang. (ECF No. 18-1 at 5-13 (contract).)[1]

Defendants Scott Van Rixel is an owner and the CEO of Bhang; defendant William Waggoner is also a Bhang owner. (ECF 18-1 at 1-2 (¶¶ 1, 4).) Mentor alleges that Van Rixel and Waggoner were intended third-party beneficiaries of the Mentor-Bhang contract. See (ECF No. 16 at 1 (¶ 1).) The parties' contract has an arbitration clause whose relevant terms provide:

This Agreement shall be governed and construed in accordance with the laws of the State of California.... In the event that any dispute is unresolved after good faith attempts by the Parties, any Party may demand arbitration. In that case, the matter will be submitted to final and binding arbitration before an arbitrator of the American Arbitration Association.... In the event [that] a Party brings any legal action or submits any claim or controversy to arbitration with respect to this Agreement, the prevailing Party, in addition to any other remedies available to it, shall be entitled to recover reasonable attorneys' fees and costs from the non-prevailing Party, regardless of whether such action, claim or controversy is prosecuted or arbitrated to completion.

(ECF 18-1 at 10.) The parties do not dispute that they formed this contract. They do not dispute its terms.

The agreement did not work out. Mentor brought this suit for rescission; it claims, in short, that Bhang "failed to perform its obligations under the... Agreement" by not adequately publicizing Mentor's investment and by failing to give Mentor the requisite shares in Bhang. E.g., (ECF No. 19 at 7-8.) Bhang responds that Mentor failed to make the required investment payments. (ECF No. 26 at 8.) Bhang has moved to compel arbitration. (ECF No. 18.)

LEGAL STANDARDS

The Federal Arbitration Act (FAA) establishes that contractual arbitration agreements must be enforced "save upon such grounds as exist at law or in equity for the revocation of any contract." Newton v. Am. Debt Servs., Inc., 549 Fed.Appx. 692, 693 (9th Cir. 2013) (quoting 9 U.S.C. § 2). The FAA reflects "both a liberal federal policy favoring arbitration, ' and the fundamental principle that arbitration is a matter of contract.'" AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) and Rent-A-Center, West, Inc. v. Jackson, 130 S.Ct. 2772, 2776 (2010)). "In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." Concepcion, 131 S.Ct. at 1745-46 (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006) and Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989)).

"[W]here a contract contains an arbitration clause, " moreover, "courts apply a presumption in favor of arbitrability... and the party resisting arbitration bears the burden of establishing that the arbitration agreement is inapplicable." Wynn Resorts v. Atlantic-Pacific Capital, Inc., 497 Fed.Appx. 740, 742 (9th Cir. 2012).

"Once the court has determined that an arbitration agreement relates to a transaction involving interstate commerce, thereby falling under the FAA, the court's only role is to determine whether a valid arbitration agreement exists and whether the scope of the dispute falls within that agreement." Ramirez v. Cintas Corp., No. C 04-00281 JSW, 2005 WL 2894628, at *3 (N.D. Cal. Nov. 2, 2005) (citing 9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). The Ninth Circuit has emphasized a district court's limited role in this area:

The standard for demonstrating arbitrability is not high. The Supreme Court has held that the FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. Such agreements are to be rigorously enforced. Under § 4 of the FAA, the district court must order arbitration if it is satisfied that the making of the agreement for arbitration is not in issue. Therefore, the ...

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