Case Name: Xfund Management Company et al v Van Vuuren and nominal defendant Silicon Valley Bank
Case No: 16CV297191

The Motion for Appointment of Referee by Plaintiffs’ Xfund Management Company, LLC (Management Company) and Xfund 2, LLC, (General Partner) is DENIED.

Code of Civil Procedure Section 638 provides that the court may appoint a referee upon the motion of any party to a written contract..that provides that any controversy arising therefrom shall be heard by a referee if the court finds that a reference agreement exists between the parties. Plaintiffs seek the appointment of a referee pursuant to the Deposit Agreement and Disclosure Statement which governs the rights between Silicon Valley Bank and those who deposit money at the bank. Specifically, plaintiffs wants a privately paid referee/judge to adjudicate the first cause of action for Declaratory and Injunctive relief in plaintiffs’ complaint. In that cause of action, plaintiffs contend an actual controversy exists between plaintiffs (Xfund General Partner and Xfund Management Company) and defendant Hugo Van Vuuren concerning their respective rights under the operating agreements for the General Partner and the Management Company. Plaintiffs contends complete management and control rests with Mr. Chung, not Mr. Van Vuuren. Plaintiffs assert Mr. Chung should control the subject bank accounts and Mr. Van Vuuren should not be able to access or control those accounts. (Paragraph 38 of Complaint). Whoever prevails on this issue will likely control the bank accounts at issue.

Paragraph 1 of the Silicon Valley Bank’s Deposit Agreement states in relevant part “…if a dispute arises between you and us regarding this agreement or any Service”…the right to a jury trial is waived. Paragraph 2 of the agreement states in relevant part: “….if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge.”

Civil Code Section 1644 sets forth that words in a contract are to be understood in their ordinary and popular sense.

A plain reading of paragraphs 1 and 2 of the Deposit Agreement demonstrates that Silicon Valley Bank is attempting to avoid having a jury determine disputes between it and its account holders. Paragraph 1 seeks a waiver of a jury trial as long as such a waiver is permitted by law. And, in paragraph 2, if the waiver of the right to a jury trial is not enforceable, the Bank seeks to have the dispute decided by a private judge. Neither side addressed this specific point.

More to the point, however, this is not a dispute between Silicon Valley Bank on the one hand and the account holders on the other hand. Nor is it a dispute regarding the Deposit Agreement or any Service. Indeed, as the verified complaint makes clear in paragraph 8, the Bank is named as a nominal defendant “simply for the purpose of allowing the Court to afford complete relief as this action seeks a declaration of rights with respect to who can have access to the bank accounts maintained at the Bank.” As the verified complaint repeatedly alleges, this case is ultimately a dispute between Mr. Chung (who owns a majority interest in the Management Company and beneficially owns just over 50% of the membership interest in the General Partner) and Mr. Van Vuuren over who has control over Xfund and its assets. (See, for example, verified complaint paragraphs 1-4,21,22-24,37-44).

Civil Code Section 1636 states that “A contract must be so interpreted as to give effect to the mutual intent of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.”
It would be absurd to conclude that at the time the Deposit Agreement was entered into the parties intended that the Bank’s Deposit Agreement would trigger and ultimately decide the manner and mode under which disputes arising from the operating agreements between the General Partner and Management Company would be adjudicated simply because access to bank accounts may be at issue. In fact, on p. 57, paragraph 10 b of the Deposit Agreement, there is already a mechanism in place to deal with “Disputes Over Access or Control.” Part of that paragraph states: “If a dispute arises over control or access to your account………We may…thereafter “freeze” the account until we get evidence satisfactory to us that the dispute has been resolved.” That is precisely what happened here. The Bank has frozen 4 bank accounts and is apparently awaiting the resolution of this dispute. Paragraph 10 b also mentions that the Bank has the option of commencing an action in Interpleader so that the court can decide who owns the funds. The Bank also gives itself other specific options when there is a dispute over access or control to bank accounts. However, importantly, the Bank does not mention that a dispute involving access or control to bank accounts must be referred to a private referee under Code of Civil Procedure 638.

The Motion to Appoint A Referee is DENIED