2016-00205624-CU-WT

Ellen Sung vs. Diagnostic Pathology Medical Group, Inc.

Nature of Proceeding: Motion to Compel Arbitration and Stay Litigation

Filed By: Post, Charles L.

This matter was continued on 12/20/2017 after oral argument. At oral argument, Plaintiff claimed that she did not have an opportunity to brief severance. The matter was thus continued to allow the parties an opportunity to brief the specific issue of severance.

The tentative ruling from 12/20/2017 is repeated below, except where revised to include additional discussion regarding severance and footnote no. 6 in Plaintiff’s supplemental brief. If oral argument is requested, the Court will only allow

argument on the severance issue and footnote no. 6 in Plaintiff’s supplemental brief.

Defendants Diagnostic Pathology Medical Group, Inc. (“DPMG”) and Derek Masree, M.D.’s (“Masree”) (collectively “Defendants”) motion to compel arbitration and stay litigation is ruled upon as follows.

I. Overview

This is an employment action. Plaintiff Ellen Sung, M.D. Ph.D. was employed by DPMG. In 1988, she was made a full shareholder and member of DPMG’s Board of Directors. Masree served as DPMG’s President from mid-2012 to present. The complaint asserts causes of action for: (1) wrongful termination in violation of public policy, (2) gender discrimination, (3) race discrimination, (4) failure to investigate, (5) breach of fiduciary duties/shareholder oppression, (6) involuntary dissolution, (7) securities fraud, (8) breach of contract, (9) breach of implied-in-fact contract, (10) failure to pay wages/waiting time penalties, (11) failure to reimburse expenses, (12) declaratory relief, (13) breach of implied covenant of good faith and fair dealing, (14) unfair competition, (15) intentional interference with contract, and (16) defamation.

With respect to the intentional interference with contract and defamation causes of action, Plaintiff alleges that Masree interfered with her rights under the employment and shareholder agreements by making defamatory statements to other DPMG shareholders in an effort to have DPMG terminate her. She further alleges that Masree made defamatory statements to third-parties regarding the circumstances surrounding her termination.

With respect to the breach of fiduciary duties/shareholder oppression cause of action, Plaintiff alleges that DPMG and Marsee “violated fiduciary duties and the duty of good faith by failing to treat Plaintiff fairly by wrongfully terminating her employment, failing to provide her the contractually required notice, violating the 10 days’ notice requirement contained in DPMG’s Bylaws and the California Corporations Code for corporate actions taken pursuant written consent of the shareholders, and denying her a forum and means to convince other shareholders of the dishonesty behind Dr. Marsee’s intentions to terminate her and his retaliatory motive, among other actions.” (Complaint ¶ 75.)

Plaintiff filed this action on December 30, 2016.

Trial is scheduled for July 9, 2018.

II. Legal Standard

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement. (Engalla v. Permanente Medical Group (1997) 15 Cal.4th

951, 972.) “Once that burden is satisfied, the party opposing arbitration

must prove by a preponderance of the evidence any defense to the petition.” (Sparks v. Vista Del Mar Child and Family Svcs. (2012) 207 Cal.App.4th 1511, 1517.)

III. Analysis

Defendants move to compel arbitration pursuant to the following arbitration provision (“Arbitration Clause”) in the Shareholder/Physician Employment Agreement (“Employment Agreement”) signed by Plaintiff on 4/2/1990:

DPMG and Employee agree that any unresolved dispute that may arise under the provisions of this Agreement shall be submitted to binding arbitration in Sacramento, California. The arbitrator shall be a member of the American Arbitration Association and the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. If the parties are unable to agree on a single arbitrator, an arbitrator shall be appointed by the court as provided in California Code of Civil Procedure section 1281.6. The written determination of the arbitrator shall be final, binding and conclusive on the parties. Employee understands that Employee may be represented by an attorney in such proceedings and Employee agrees that arbitration shall be the exclusive method of resolving all disputes relating to Employee’s employment by DPMG, the termination such employment or any other provision of this Agreement. If DPMG initiates a suit for Injunctive Relief, any ancillary or cross-complaint for damages shall be submitted to arbitration unless such procedure is expressly waived in writing by DPMG.

(Declaration of Michael Finn, Ex. A.) Defendants have agreed to pay the arbitrator’s fee and is agreeable that both parties conduct reasonable discovery.

Plaintiff does not dispute that a valid arbitration agreement exists with DPMG. Plaintiff correctly notes that Masree is not a signatory to the Employment Agreement. Masree’s lack of signature is of no moment. The law allows a non-party to enforce an arbitration agreement provided the non-party has “a sufficient identity of interest” with a party to the agreement. (DMS Services Inc. v. Superior Court (2012) 205 Cal.App.4th 1346, 1353.) “In many cases, non-parties to arbitration agreements are allowed to enforce those agreements where there is sufficient identity of parties. For example, defendants who are not signatories to an arbitration agreement, but who are acting agents for the party to the arbitration provision, may be allowed to enforce the arbitration clause. (See Valley Casework, Inc. v. Comfort Construction, Inc. (1989) 76 Cal.App.4th 1013, 1021.) Here, Plaintiff alleges that Masree has served as DPMG President from mid-2012 to the present. (Complaint, ¶ 5.) She further alleges that “each of the defendants was the agent, employee, supervisor, servant and/or joint venturer of each of the remaining defendants and, in doing the things hereafter alleged, was acting within the

course, scope, and authority of such agency, employment and/or joint venture, and with the consent and permission of each of the other defendants. All actions of each defendant alleged in the causes of action into which this paragraph is incorporated by reference were ratified and approved by the officers or managing agents of every other defendant.” (Complaint ¶ 6.) These allegations are sufficient to demonstrate a “sufficient identify of interest” with DPMG. Moreover, as a moving party to this motion, Masree has agreed to be bound by the Arbitration Clause and consents to arbitration.

Plaintiff next contends that the motion should be denied because: (1) Defendants waived their right to compel arbitration, (2) the Arbitration Clause is unconscionable, and (3) the scope of the Arbitration Clause does not include Plaintiff’s shareholder and tort claims.

A. Waiver

“[N]o single test delineates the nature of the conduct that will constitute a waiver of arbitration.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195-1196.) “In determining waiver, a court can consider (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” ( Id. at 1196, internal quotation marks omitted; see also Sobremonte v. Superior Court (1998) 61 Cal. App. 4th 980, 992.)

Arbitration is strongly favored. Courts will closely scrutinize any claims of waiver and indulge every intendment to give effect to such proceedings. (Keating v. Superior Court (1982) 31 Cal.3d 584, 605, overruled on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1.) Indeed, “[A] party who resists arbitration on the ground of waiver bears a heavy burden and any doubts regarding a waiver allegation should be resolved in favor of arbitration.” (St. Agnes, 31 Cal.4th at 1195.)

In California, whether or not litigation results in prejudice is critical in waiver determinations. (Keating v. Superior Court (1982) 31 Cal.3d 584, 605, disapproved on other grounds, Southland Corp. v. Keating (1983) 465 U.S. 1.) “Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.” (St. Agnes, supra, at 1203.) “Prejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy [in favor of arbitration] or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration.” (Id. at 1204.) “[C]ourts have found prejudice where the petitioning party used the judicial processes to gain

information about the other side’s case that could not have been gained in arbitration [citations]; where a party has unduly delayed and waited until the eve of trial [six weeks prior to trial] to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence…” ( Id. at 1204.)

Plaintiff advances that Defendants waived arbitration by: (1) failing to assert arbitration as an affirmative defense in their answer, (2) failing to mark arbitration in their Case Management Statement (“CMS”), (3) participating in discovery, and (4) delaying the filing of the motion for nearly 12 months.

The failure to plead arbitration as an affirmative defense, standing alone, does not constitute waiver. (Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558.) Instead, a party seeking arbitration must either raise the right to arbitrate in its answer or file a petition to compel arbitration. (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1795-1796.) Moreover, although Defendants delayed moving to compel arbitration and engaged in discovery, Plaintiff makes no showing that she was prejudiced by Defendants’ conduct. Nor can the Court say that Defendants have necessarily acted inconsistently with a right to arbitrate. This is not a situation such as in Sobremonte, supra, 61 Cal.App.4th 980, where waiver was found when trial was only six weeks away and the party seeking arbitration delayed compelling arbitration for ten months, during which time it filed demurrers, served multiple sets of discovery, filed other motions and made a 998 offer based in part on information obtained through discovery. The case upon which Plaintiff relies Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, does not support her argument. In Augusta, the compelling party not only delayed moving to compel arbitration, but also engaged in discovery which the arbitration clause prohibited. Most importantly, the court found prejudice because the compelling party had used the discovery process to gain information about the other side’s case which the compelling party could not have gained in arbitration. (Id. at 340-342 [“[d]espite the delay in seeking arbitration and lack of intent to arbitrate, the conduct of the party demanding arbitration must have prejudiced the opposing party.”].) Here, Plaintiff sets forth no facts or argument showing that Defendants gained information that they could have gained in arbitration or that the delay resulted in lost evidence.

The Court concludes that Plaintiff fails to satisfy her heavy burden that Defendants waived their right to compel arbitration.

B. Unconscionability

An arbitration agreement may be revoked on “such grounds as exist for the revocation of any contract.” (Civ. Code § 1281.) Further, the Court may refuse to enforce any contract or any provision of a contract determined to be unconscionable. (Civ. Code § 1670.5.)

“Unconscionability has both a ‘procedural’ and a ‘substantive’ element, the former focusing on ‘oppression’ or ‘surprise’ due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’ results. The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability. But they need not be present in the same degree. … [T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Peng v. First Republic Bank (2013) 219 Cal. App. 4th 1462, 1469 [internal citations and quotations omitted.].)

The core concern of the unconscionability doctrine is the “absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” The unconscionability doctrine ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as “overly harsh”, “unduly oppressive”, “so one-sided as to shock the conscience” or “unfairly one-sided” All of these formulations point to the central idea that the unconscionability doctrine is concerned not with “a simple old-fashioned bad bargain” but with terms that are “unreasonably favorable to the more powerful party.

(Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, 1145 [internal citations and quotations omitted.].)

i. Procedural Unconscionability

Plaintiff claims that the Arbitration Clause is procedurally unconscionable for the following reasons: (1) it is an adhesion contract, (2) it is “inconspicuous and hidden,” and (3) Defendant failed to provide Plaintiff with a copy of AAA rules.

Preliminary, the Court disagrees with Plaintiff that the Arbitration Clause is “inconspicuous and hidden.”

“It is well settled that adhesion contracts in the employment context, that is, those contracts offered to employees on a take-it-or-leave-it basis, typically contain some aspects of procedural unconscionability.” (Peng, supra, 219 Cal. App. 4th at 1470.) The adhesive aspect of an agreement is not dispositive. (Id.) The Court must also look to whether there is any other indication of oppression or surprise. (Id.) The failure to attach that AAA rules, by itself, is insufficient to support a finding of procedural unconscionability. (Peng, supra, 219 Cal. App. 4th at 1472; see also Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.) Here, the Court concludes that there is a minimal level of procedural unconscionability because the Arbitration Clause is adhesive and Plaintiff did not receive a copy of the AAA rules.

ii. Substantive Unconscionability

“Substantive unconscionability focuses on overly harsh or one-sided results. In assessing substantive unconscionability, the paramount consideration is mutuality. This does not mean that parties may not choose to exclude particular types of claims from the terms of arbitration. However, an arbitration agreement imposed in an adhesive context lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.” (Fitz v. NCR Corp. (2004) 118 Cal. App. 4th 702, 723.) “An agreement may be unfairly one-sided if it compels arbitration of the claims more likely to be brought by the weaker party but exempts from arbitration the types of claims that are more likely to be brought by the stronger party.” (Id. at 724.)

Plaintiff advances that the Arbitration Clause is substantively unconscionable because it allows DPMG to initiate suit for injunctive relief, but requires any cross-complaints for damages to be submitted to arbitration. Specifically, the Arbitration Clause provides “[i]f DPMG initiates a suit for Injunctive Relief, any ancillary or cross-complaint for damages shall be submitted to arbitration unless such procedure is expressly waived in writing by DPMG.”

The Court agrees with Plaintiff that the above language is substantively unconscionable. In an employer’s action for injunctive relief against an employee, the only cross-complaints for damages will be by the employee against the employer. Yet, the Arbitration Clause requires the employee’s cross-complaint for damages to be submitted to arbitration. The Court also notes that paragraph 13 of the Employment Agreement which is entitled “Injunctive Relief” reiterates that “DPMG shall be entitled to injunctive relief in the event of any breach of [the ‘Exclusive Service’ and ‘Assignment of Inventions’] provisions.” (Declaration of Michael Finn, Ex. A.) These provisions are unlike the arbitration agreement in Baltazar v. Forever 21, Inc. (2016)
62 Cal.4th 1237, where both parties were authorized to seek preliminary injunctive relief in court, and simply recited the procedural protections provided in CCP §1281.8 (b).

The Court concludes that given injunctive relief “carve-out” there is a level of substantive unconscionability.

iii. Severance

Preliminarily, the Court notes that Plaintiff’s supplemental brief goes beyond the Court’s order for briefing on the specific issue of severance, and basically re-argues both procedural and substantive unconscionability. The Court declines to reconsider such arguments. The Court will only focus on whether the above two provisions may be severed.

“If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of a severance or restriction, then such severance and restriction is appropriate.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124.) In assessing severability, “[c]ourts are to look to the various purposes of the contract. If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance and restriction, then such severance or restriction are appropriate.” (Id.)

Plaintiff claims that the Arbitration Clause is “permeated with unconscionability” that it cannot be severed or enforced. Plaintiff points to a Non-Compete Clause “that purports to restrict Plaintiff from working a pathologist in the four surrounding counties.” (Opposition, 11:7-10.) Plaintiff has not cited to any provision within the Employment Agreement in which there is a Non-Compete Clause. The Court has also reviewed the Employment Agreement, and a Non-Compete Clause which restricts Plaintiff from working as a pathologist in the four surrounding counties is nowhere to be found. The Employment Agreement does includes an “Exclusive Service” provision in which during the terms of her employment, Plaintiff must obtain DPMG’s written consent to directly or indirectly render services to DPMG’s competitor. (Declaration of Michael Finn, Ex. A, para. 2.2.) A Non-Competition Clause, however, is included in an entirely separate agreement entitled the “Restated Agreement Among Shareholders” dated January 1, 1992 (“Shareholders’ Agreement”). (Declaration of Ellen Sung, Ex. B.) The Shareholders’ Agreement does not incorporate the Employment Agreement, refer to employment, or include an arbitration provision. (Id.) The Shareholders’ Agreement was meant to “restate and amend the Stock Purchase Agreement.” (Id.) Thus, this Non-Compete Clause does not permeate the Arbitration Clause.

Moreover, the four cases upon which Plaintiff relies in her supplemental brief do not assist her.

In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, the arbitration provision included a limitation on damages for employees and a requirement that the employee arbitrate claims arising out of wrongful termination. The court found these two terms unconscionable. The court explained that two factors weighed against severance: (1) “multiple defects indicate a systemic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage”, and (2) “in the case of the agreement’s lack of mutuality, such permeation is indicated by the fact that there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement.” (Id. at 124-125.)

In Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, the court found three substantively unconscionable terms that were not severable. The first allowed the employer to seek injunctive relief in court while limiting plaintiff’s relief to arbitration.

The second allowed the employer to obtain injunctive relief without posting a bond or other security. The third waived the plaintiff’s statutory right to recover attorney’s fees if she prevailed on her Labor Code claims. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 247.)

In Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, the court declined to sever two unconscionable provisions. One imposed impermissible forum costs on the employee in violation of public policy, and the other excluded from arbitration all claims that the employer would most likely assert against the employee.

In Trivedi v. Curexo Technology Corp. (2010) 189 Cal. App. 4th 387, the arbitration agreement included two unconscionable terms: (1) a mandatory attorney’s fees and costs provision in favor of the prevailing party, and (2) an injunctive relief provision that favored the employer. The trial court explained that the terms were unconscionable because it placed the employee at greater risk than if he retained the right to bring his FEHA claims in court, and because the employer was more likely to benefit from injunctive relief. The court held that the trial court was free to sever the provisions, but was not required to so do.

Here, although the Court has identified two provisions that are severable, the two provisions appear to be duplicative. It is also worth noting that Paragraph 13 is not part of the Arbitration Clause, but is a separate paragraph included in the Employment Agreement. Thus, the Court cannot conclude that there are “multiple defects” indicating a “systemic effort” to impose arbitration on Plaintiff. Moreover, the Court can strike the offending language to remove the “taint from the agreement.” (Id. at 124-125.) Plaintiff also claims that the Arbitration Clause is unconscionable because it “does not expressly provide that DPMG will pay all cost unique to

arbitration.” (Supplemental Brief, 6:13-15 [citing Armendariz, supra, at 110-111].) Armendariz does not so hold. Armendariz prohibited the employer from requiring that the employee bear any type of expense the employee would not be required to bear if she were free to bring the action in court. (Id. at 110-111.) However, the court held that silence as to arbitration costs is not a ground for denying enforcement because “a mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.” (Id. at 113.) The Arbitration Clause at issue here is silent as to costs, and in any event, Defendants have agreed to pay the arbitrator’s fees.

Consequently, the Court will sever Paragraph 13 from the Employment Agreement as well as the following sentence from the Arbitration Clause: “[i]f DPMG initiates a suit for Injunctive Relief, any ancillary or cross-complaint for damages shall be submitted to arbitration unless such procedure is expressly waived in writing by DPMG.”

Given that the Court has severed the above provisions, there are no longer substantively unconscionable terms. Therefore, the Arbitration Clause is not unconscionable.

C. Scope of Agreement

The Arbitration Clause provides “DPMG and Employee agree that any unresolved dispute that may arise under the provisions of this Agreement shall be submitted to binding arbitration in Sacramento, California.” (Declaration of Michael Finn, Ex. A.) Plaintiff contends that the phrase “under the provisions of this Agreement” limits the type of actions that are subject to arbitration. According to Plaintiff, only the breach of contract, breach of implied-in-fact contract, failure to pay wages, failure to reimburse expenses, declaratory relief, and breach of implied covenant of good faith and fair dealing causes of action arise “under the provisions” of the Employment Agreement.

The Arbitration Clause, however, is not as narrow as Plaintiff suggests. It further provides that arbitration “shall be the exclusive method of resolving all disputes relating to Employee’s employment by DPMG, the termination such employment or any other provision of this Agreement.” (Id. [emphasis added.]) The Court concludes that the employment-related causes of action are subject to arbitration, but the shareholder-related causes of action are not.

While the scope of the Arbitration Clause is broad, Plaintiff has raised an additional issue in Footnote no. 6 in her supplemental brief regarding whether the Declaratory Relief and Labor Code causes of action are arbitrable. Although these points were not raised in Plaintiff’s original opposition, the Court, in its discretion, will address them here.

In the footnote, Plaintiff states, in part:

Plaintiff respectfully suggests that her cause of action for declaratory relief – which is based upon the non-compete clause in the Shareholder Agreement (Sung Dec., Ex. B) – is also not subject to arbitration. To further complicate matters, Plaintiff’s Tenth Cause of Action for failure to pay wages under Labor Code §§ 201 & 203 is not arbitrable pursuant to Labor Code section 229.

(Plaintiff’s Supplemental Brief, p. 9, fn. 6.)

The Court agrees with Plaintiff that the Declaratory Relief cause of action is not subject to arbitration. The Declaratory Relief cause of action seeks two declarations: (1) that DPMG’s Non-Compete Clause is void and unenforceable under California law, and (2) that DPMG’s purported action to terminate Plaintiff as a DPMG shareholder and employee by written consent is illegal, null and void. The Non-Compete Agreement is included in the Shareholders’ Agreement; it does not incorporate the Employment Agreement, refer to employment, or include an arbitration provision. Additionally, with respect to her termination, Plaintiff alleges that “DPMG’s action to terminate Plaintiff as a shareholder and employee pursuant to the written consent of two-thirds of DPMG

Shareholders, in violation of DPMG’s Bylaws and the Corporations Code.” (Complaint,

¶ 114.) Thus, the cause of action arises from the Shareholders’ Agreement which does not include an arbitration provision.

With respect to the Tenth Cause of Action for Violation of Labor Code §§ 201 and 203, the Court agrees with Plaintiff that Labor Code §201 (failure to pay wages upon termination) is exempt from arbitration, but Labor Code § 203 (waiting time penalties) is arbitrable. Labor Code §229 provides, in part, “[a]ctions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.” An action for waiting time penalties (Labor Code § 203) does not seek to “collect due and unpaid wages”, thus, Labor Code §229 does not apply. (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 684.) Nonetheless, because the Labor Code §203 claim is purely derivative of the Labor Code §201 claim, the Court will join the Labor Code §203 with the court action. (CCP §1281.2(c)(2).)

In sum, the Court concludes that the following causes of action fall within the Arbitration Clause and must be arbitrated: (1) wrongful termination in violation of public policy, (2) gender discrimination, (3) race discrimination, (4) failure to investigate, (5) intentional interference with contract, (6) defamation, (7) unfair competition, (8) breach of contract, (9) breach of implied-in-fact contract, (10) failure to reimburse expenses, and (11) breach of implied covenant of good faith and fair dealing.

The following causes of action are outside of the Arbitration Clause: (1) involuntary dissolution, (2) securities fraud, (3) breach of fiduciary duties/shareholder oppression,
(4) declaratory relief, and (5) Labor Code §§201 and 203. The Court recognizes that the breach of fiduciary duties/shareholder oppression and declaratory relief causes of action appear to be a mixed employment/shareholder claim. However, because the causes of action mainly concern Plaintiff’s role as a shareholder and not an employee, the Court determines that the causes of action are not subject to arbitration. The Court is not persuaded by Defendants’ arguments that the Employment Agreement and Shareholders’ Agreement are so intertwined by the same subject matter that the shareholder causes of action should be heard in arbitration.

IV. Disposition

The motion to compel arbitration of the: (1) wrongful termination in violation of public policy, (2) gender discrimination, (3) race discrimination, (4) failure to investigate, (5) intentional interference with contract, (6) defamation, (7) unfair competition, (8) breach of contract, (9) breach of implied-in-fact contract, (10) failure to reimburse expenses, and (11) breach of implied covenant of good faith and fair dealing causes of action is GRANTED. The motion to stay these causes of action is GRANTED pending completion of the arbitration proceedings.

The motion to compel arbitration of the: (1) involuntary dissolution, (2) securities fraud,

(3) breach of fiduciary duties/shareholder oppression, (4) declaratory relief, and (5) Labor Code §§201 and 203 is DENIED.

Given the possibility of inconsistent rulings, the motion to stay is GRANTED as to the involuntary dissolution, securities fraud, and breach of fiduciary duties/shareholder oppression causes of action. The motion to stay is also GRANTED with respect to the declaratory relief claim based only on DPMG’s purported action to terminate Plaintiff as a DPMG shareholder and employee by written consent. These causes of action are stayed pending resolution of arbitration proceedings.

The motion to stay is DENIED as to the Labor Code §§ 201 and 203 cause of action, and to the declaratory relief claim based only on the Non-Compete Clause. These issues are collateral and would result in prejudice to Plaintiff if they were stayed pending resolution of the arbitration. (See CCP §1281.4; see also Cook v. Superior Court of Los Angeles County (1966) 240 Cal.App.2d 880, 885.) Indeed, pursuant to the Non-Compete Agreement, Plaintiff is prohibited from competing with DPMG in Sacramento, Placer, El Dorado or Yolo Counties for a period of three years following her termination. Plaintiff was terminated in January 2016, therefore, the non-compete prohibition expires in January 2019. It is thus likely that if the claim were stayed pending arbitration, the court action would not proceed until 2019 and the claim would be rendered moot. Plaintiff would also be prohibited from working in the four counties during that period.