United States District Court, S.D. California
FERNANDO TRUJILLO, SR., an individual; FERNANDO TRUJILLO, JR., an individual, Plaintiffs,
ALVIN M. GOMEZ, an individual; and DOES 1 through 25, inclusive, Defendants.
ORDER GRANTING IN PART AND DENYING IN PART ALVIN GOMEZ'S MOTION TO COMPEL MEDIATION AND ARBITRATION AND DISMISS OR STAY ACTION
BARRY TED MOSKOWITZ, Chief District Judge.
Defendant Alvin M. Gomez has filed a Motion to Compel Mediation and Arbitration and Dismiss or Stay Action Based upon Agreement to Mediate and Arbitrate. For the reasons set forth below, Defendant's motion is GRANTED IN PART and DENIED IN PART.
Plaintiffs Fernando Trujillo, Sr. ("Trujillo Sr."), and Fernando Trujillo, Jr. ("Trujillo Jr."), commenced this action on October 17, 2014. Plaintiffs allege that prior to September 2012, Trujillo Sr. successfully negotiated a distribution agreement ("Distribution Agreement") with Yankon Industries, Inc., doing business in the United States under the business name "Energetic Lighting." (Compl. ¶ 10.) Under the Distribution Agreement, Trujillo Sr. was granted the exclusive rights to distribute lighting products manufactured by Energetic in Mexico, South America, Central America, Russia, Poland, South Africa, and the United Arab Emirates. (Id.)
In August or September 2012, Trujillo Sr. told Alvin Gomez, his attorney, about the Distribution Agreement. (Compl. ¶ 12.) Gomez told Trujillo Sr. that he knew all of the local judges, district attorneys, and political figures in San Diego and that he could use his connections to assist Trujillo Sr. with the distribution of the lighting equipment. (Id.) Gomez suggested that it would be best if the Distribution Agreement were assigned to a corporation. (Compl. ¶ 13.) Trujillo Sr. agreed to let Gomez form a corporation. (Id.)
Gomez demanded that he be made a 50% shareholder of the corporation as well as the President and CEO. (Compl. ¶ 14.) Gomez advised that Trujillo Jr. be named as a shareholder of the corporation and advised Trujillo Sr. not to hold any interest in the company. (Id.) "In so doing, Gomez offered 50% of the yet-to-be-formed company to Trujillo, Sr. and Trujillo, Jr." (Id.) Gomez subsequently represented that he would distribute profits of the company 50/50. (Compl. ¶ 15.)
On or about September 5, 2012, Gomez formed Platinum LED US, Inc. ("Platinum"), a California corporation. (Compl. ¶ 16.) Relying upon Gomez's prior representations, Trujillo Jr. and Trujillo Sr. agreed to assign Trujillo Sr.'s rights under the Distribution Agreement to Platinum in exchange for 250, 000 shares of Platinum. (Compl. ¶ 17.) Trujillo Sr. asked Energetic to replace his name on the Distribution Agreement with Platinum's, and Gomez executed a new Distribution Agreement on behalf of Platinum. (Id.)
Gomez thereafter held Trujillo Sr. out as an "independent contractor" of Platinum. (Compl. ¶ 17.) Gomez offered to provide Trujillo Sr. with office space in Gomez's office, a paid salary of $15, 000 per month, use of a car, and other like benefits. (Compl. ¶ 19.)
Plaintiffs allege that Gomez did not pay out profits as promised. Instead, he unreasonably deducted expenses, such as $9, 000 per month for rent and $1, 000 per month for stationery, and altered the profit arrangement so that Gomez was paid 75% of the profits and Trujillo Sr. was paid 25%. (Compl. ¶ 20.) In or about March of 2014, Gomez ceased paying any salary for Trujillo and refused to distribute any profits. (Id.) When Trujillo Sr. complained, Gomez threatened to have him incarcerated, physically beaten, and deported. (Compl. ¶ 21.)
Plaintiffs allege that Gomez's representations regarding his connections in San Diego and his ability to leverage those connections as well as his representation regarding the division of profits were false. (Compl. ¶ 22.) Plaintiffs claim that they reasonably relied on Gomez's representations and that Plaintiffs have suffered financial loss. (Compl. ¶ 23.) Plaintiffs allege a claim for violation of the Securities and Exchange Act of 1934, Rule 10(b) and S.E.C. Rule 10b-5 (15 U.S.C. § 78j(b), et seq., and 17 C.F.R. § 240.20b-5).
Defendant Alvin Gomez moves to compel non-binding mediation and arbitration pursuant to the terms of a Shareholder Agreement. Gomez also moves to dismiss or stay this action and requests reasonable attorney's fees and costs in connection with the filing of the instant motion. The Court finds that the arbitration agreement is enforceable against Plaintiffs and therefore compels arbitration and dismisses this action. However, the Court declines to compel non-binding mediation and denies Gomez's request for attorney's fees and costs.
A. Enforcement of the Arbitration Agreement
1. The Arbitration Agreement
Trujillo Jr. is a signatory to the Platinum LED U.S. Inc. Shareholder Agreement dated May 1, 2013 agreement ("Shareholder Agreement"). (Ex. 1 to Gomez Decl.) Article 10 of the Shareholder Agreement provides:
10.1 Mediation. Any claim or controversy arising out of or relating to this Agreement, the Corporation, or the rights or obligations of the Shareholders as Shareholders, officers, or employees of the Corporation shall first be submitted to mediation in San Diego County.... All shareholders agree that prior to the institution of any demand for Arbitration, that in the event of any dispute, he or she shall agree to mediation with 45 days of any demand for mediation. This mediation provision must be satisfied in good faith before making a demand for Arbitration.
10.2 Arbitration. Any claim or controversy arising out of or relating to this Agreement, the Corporation, or the rights or obligations of the Shareholders as Shareholders, officers, or employees of the Corporation will be settled by binding arbitration in San Diego County, according to the California Arbitration Statutes in effect at the time.... The prevailing party to the arbitration proceeding shall be entitled to reasonable attorneys' fees and costs incurred in enforcing any arbitration award or engaging in any court proceedings only if he or she complies with the mediation provision as set forth in paragraph 10.1.
The Shareholder Agreement also provides that the Agreement "shall be construed according to and governed by the laws of the State of California." Article 12, ¶ 12.3.
2. Governing Law
Gomez seeks to enforce the arbitration agreement under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4. Section 4 of the FAA provides that a party aggrieved by the failure of another to arbitrate under a written agreement for arbitration may petition any United States district court "for an order directing that such arbitration proceed in the manner provided for in such agreement." Here, the arbitration agreement states that the "California Arbitration Statutes" and California law govern. Therefore, California's rules of arbitration apply. Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior University, 489 U.S. 468, 477-78 (1989).
The California Arbitration Act, like the FAA, favors arbitration. Under California law, "A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract." Cal. Civ. Proc. Code § 1281. A party bringing a motion to compel arbitration bears the burden of proving the existence of an arbitration agreement, while a party opposing the motion bears the burden of proving by a ...