18-CIV-04571 CNE (USA) CORPORATION, ET AL. VS. FANG DUANMU, ET AL.

CNE (USA) CORPORATION FANG DUANMU
ANDREW S. AZARMI JAMES CAI

PLAINTIFFS CNE (USA) CORPORATION, CNE CALIFORNIA HOLDINGS USA, CHINA NEW ERA GROUP CORPORATION AND CHINA CNE LIMITED WILL MOVE FOR AN ORDER CONSOLIDATING THE PRESENTLY PENDING AMERICAN ARBITRATION ASSOCIATION (“AAA”) CASE NUMBER 0 1 -1 8-0001-1734 (THE “ARBITRATION”) INTO THIS CIVII‘SACTION, AND/OR STAY THE ARBITRATION. TENTATIVE RULING:

Plaintiffs/Cross-Defendants CNE (USA) Corporation et. al.’s related Motion to Consolidate Arbitration with this Action and/or to Stay Arbitration, filed 12-18-18, is GRANTED. Code Civ. Proc. § 1281.2.

As further explained below, the Court finds that (a) this litigation, and (b) the currentlypending American Arbitration Association (AAA) proceeding (AAA Case No. 01-18-00011734), are directly related and substantially overlapping, that this dispute should heard in one forum with all parties present, and that the Court is the appropriate forum, for the reasons stated below.

First, except for CNE-Calif., none of the CNE-related entities can be compelled to arbitrate. Defendants Duanmu et. al. contend the arbitration will be meaningless unless the Court compels all of the CNE entities to join the arbitration as parties. Arbitration is a matter of contract/agreement. Except for CNE-Calif., none of the CNE entities is even arguably a party to any arbitration agreement. The offer letters that contain the arbitration provisions do not even mention any CNE entity other than CNE-California.
Second, the evidence before the Court does not provide grounds to pierce the corporate veil and treat the other CNE entities (CNEGC, CNE-USA, and CNE-LTD.) as alter egos of CNE-Calif., such that their corporate separateness can be disregarded. Defendants argue, and offer evidence, that all of the CNE entities are closed related. While indisputably true, that fact alone does not provide sufficient reason to disregard their legal separateness. Defendants offer no compelling evidence any of the CNE entities were inadequately capitalized, failed to follow corporate formalities, commingled funds or records, or otherwise engaged in conduct that would create an inequitable result if the Court were to recognize their corporate separateness. Defendants’ appeal to equity, at least to some extent, appears disingenuous given the evidence indicating that several of Defendants’ “offer letters” were intentionally backdated (see, e.g., 12-28-18 Azarmi Decl., Ex. BB; 1113-18 Decl. of Qiaoling Xie, ¶3, swearing to signing the offer letter on 10-1-15, which she later admitted is untrue), and evidence that from Sept. 2017 to March 2018, after CNE refused to pay Defendants, Duanmu began writing checks to herself and the other Defendants from the corporate bank accounts, totaling over $2,023,562.

Third, all the relevant persons/witnesses are parties to the court proceedings, whereas participation in the arbitration is necessarily limited. As stated, only CNE-Calif. can be compelled to arbitrate (although the other CNE entities could voluntarily participate). Further, Guozhen Liu is a key witness and a named Defendant in this case, but cannot be named as a party to the arbitration.

Defendants Duanmu et. al. emphasize potential problems in enforcing a U.S. judgment in China. They cite the New York Convention and other authority, arguing a U.S.-issued arbitration award is more likely to be recognized in China than a U.S. court-issued judgment. Even if true, however, this fact does not change the analysis. Defendants cite no authority suggesting the Court should rule on a Petition to Compel Arbitration, or CNE’s related motion, based on considerations about the ease or difficulty to enforcing a potential Judgment abroad.

Similarly, while certainly relevant, the fact that CNE-Calif. has voluntarily participated in the AAA proceedings for a few months does not change the result. See Stone Decl., Ex. B at 16, fn. 12 (CNE-Calif.’s AAA Answer and Counterclaim, stating: “CNE California does not concede that the unsigned employment agreements … are indeed valid enforceable written agreements …. However, for the purposes of arbitration, CNE California concedes that the alleged agreements … contain a written arbitration agreement and therefore CNE California consents to submitting this dispute to arbitration.”); see The Rutter Group: Alternative Dispute Resolution, § 5:77 (“Where a party first discovers the basis to oppose arbitration after [arbitration] proceedings commence, it may withdraw from the proceedings and commence litigation. It will then be up to the adverse party to file a petition to compel arbitration under CCP § 1281.2.”). Notwithstanding the pending arbitration, under § 1281.2, the Court may refuse to enforce even a valid arbitration agreement and order intervention or joinder of all parties in a single action. The Court finds that doing so here is appropriate.

If the tentative ruling is uncontested, it shall become the order of the Court. Thereafter, counsel for Plaintiffs/Cross-Defendants shall prepare a written order consistent with the Court’s ruling for the Court’s signature, pursuant to California Rules of Court, Rule 3.1312, and provide written notice of the ruling to all parties who have appeared in the action, as required by law and the California Rules of Court.