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Loewen v. McDonnell

United States District Court, N.D. California

September 13, 2019

Kathryn Loewen, Plaintiff,
John McDonnell, III, et al., Defendants.



         Plaintiff Kathryn Loewen brings this action against defendants John McDonnell III (“John McDonnell”), The McDonnell Group, LLC (“TMG”), John “Jack” McDonnell II (“Jack McDonnell”), Tony VanBrackle, Michael Bradley, Gary Bender, and Carneros Bay Capital LLC, in connection with the alleged theft of her start-up company, Control Mobile, Inc. (“Control”). (Dkt. No. 1 (“Compl.”).)

         Now before the Court is defendants' motion to compel arbitration and to dismiss pursuant to the Federal Arbitration Act (“FAA”), on grounds that the claims asserted in the complaint arise from and are inextricable related to Control's March 19, 2015 Amended and Restated Shareholder Agreement. (Dkt. No. 45 (“Motion”).) Having carefully considered the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court hereby Grants the motion to compel arbitration and Denies the motion to dismiss. The Court further Orders that the case shall be Stayed pending the completion of arbitration.[1]

         I. Background

         A. Plaintiff's Allegations

         The complaint alleges as follows:

In 2013, plaintiff began developing a payment analytics program that would allow businesses to access aggregated transaction analytics in real-time without the need for coding or a team of developers and data scientists to monitor and analyze the information. (Compl. ¶¶ 15-16.) In May 2014, plaintiff founded and incorporated Control, the company that would launch the payment analytics platform which plaintiff developed. (Id. ¶ 16.)

         Over the next several years, in addition to investing her own money and time into the company, plaintiff raised more than $3 million (CAD) in outside equity funding to further grow the company. (Id. ¶¶ 17-22.) On May 19, 2015, plaintiff formed Control's Board of Directors, and a Shareholder Agreement was executed by its members. (Id. ¶ 22.) VanBrackle, an early investor in Control, became a member of the Board and accordingly, a signatory to the Shareholder Agreement, pursuant to which he owed fiduciary duties to Control and its shareholders and agreed to not disclose confidential information concerning Control to persons outside the company. (Id. ¶¶ 18, 22-23.)

         On June 7, 2016, VanBrackle introduced plaintiff to John McDonnell. (Id. ¶ 25.) At VanBrackle's urging, and based upon John McDonnell's representations about his ability to raise capital, John McDonnell was permitted by the Board to invest in Control. (Id. ¶¶ 26, 29-36.) John McDonnell became a member of the Board of Directors on March 29, 2017, and in June 2017, was appointed Chief Operating Officer. (Id. ¶ 37.) As an officer and director of Control, John McDonnell became a party to the Shareholder Agreement, and thus owed the same fiduciary duties to plaintiff and the company as all other directors and officers. (Id.)

         John McDonnell failed to raise capital from outside investors as promised, leaving Control in an untenable financial position. (Id. ¶¶ 38-40.) The Board, relying on false representations by John McDonnell, approved a $400, 000 (CAD) line of credit from TMG, John McDonnell's family's business, of which Jack McDonnell served as managing partner. (Id. ¶¶ 6, 43-44.) In subsequent months, John McDonnell, together with VanBrackle and Bradley, who had been hired as an advisor to Control, orchestrated a scheme to take advantage of plaintiff's personal difficulties and Control's precarious financial condition to obtain control over the company and its assets. (Id. ¶¶ 69, 71.) This conduct culminated in John McDonnell and TMG foreclosing on the line of credit, placing Control into receivership in Canada, where John McDonnell and TMG purchased it for pennies on the dollar. (Id. ¶¶ 159-62, 164-71.)

         Plaintiff now alleges that defendants conspired to steal Control from her. Specifically, plaintiff alleges that VanBrackle, John McDonnell, and Bradley violated their fiduciary duties to plaintiff and the company by, among other things, diminishing the value of the company so that it could be taken over by TMG. (Id. ¶¶ 143-44.)[2] Plaintiff further alleges that the non-director and non-officer defendants acted in concert with and aided and abetted the officer and defendant directors in breaching their fiduciary duties. (Id. ¶ 146.)

         B. The Shareholder Agreement

         The Shareholder Agreement, to which plaintiff, McDonnell, and VanBrackle were parties, includes a mandatory arbitration provision requiring “Dispute[s]” to be “settled by arbitration under the International Commercial Arbitration Rules of the Procedure of the British Columbia International Commercial Arbitration Centre” (“BCICAC”). (Dkt. No. 45-1 (“McDonnell Decl.”), Ex. 1, § 8.6; Dkt. No. 45-2 (“VanBrackle Decl.”), Ex. 1, § 8.6.) The agreement defines “Dispute[s]” as “any dispute, disagreement, controversy, or claim between the parties with respect to the interpretation of any provision of this Agreement, any amounts due hereunder, or the breach, termination, or invalidity thereof[.]” (McDonnell Decl., Ex. 1, § 8.5; VanBrackle Decl., Ex. 1, § 8.5.)

         Notably, the BCICAC rules, which are expressly incorporated in the arbitration provision, state, in relevant part, that “[t]he arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of ...

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