Scarlett v. White et al

Filing 93

ORDER DENYING 80 WTI'S MOTION TO INTERVENE. Signed by Judge Edward J. Davila on 3/1/2018. (ejdlc2S, COURT STAFF) (Filed on 3/1/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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GREGORY AHN, et al.,

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Case No. 5:16-cv-05437-EJD

Plaintiffs,
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ORDER DENYING WTI’S MOTION TO
INTERVENE

v.
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MATTHEW D. SCARLETT, et al.,

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Re: Dkt. No. 115

United States District Court
Northern District of California

Defendants.
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MATTHEW SCARLETT,
Plaintiff,

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Case No. 5:17-cv-01430-EJD
Re: Dkt. No. 80

v.

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JONATHAN WHITE, et al.,
Defendants.

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WTI, a Colorado general partnership, moves the Court to intervene in the above-captioned

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related actions. Motion (“Mot.”), Case No. 16-5437, Dkt. No. 115.1 Cult of 8, Inc. (“CO8”)

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opposes. Opposition (“Opp’n”), Case No. 16-5437, Dkt. No. 122.2 For the reasons discussed

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below, WTI’s motion is DENIED.

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I.

BACKGROUND
These related actions involves three former business associates, Matthew Scarlett, Jonathan

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An identical motion has been filed in Case No. 17-1430 at Dkt. No. 80. The Court will refer to
the motions collectively as “Motion” or “Mot.”
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An identical opposition has been filed in Case No. 17-1430 at Dkt. No. 84. The Court will refer
to the oppositions collectively as “Opposition” or “Opp’n.”
Case No.: 5:16-cv-05437-EJD
ORDER DENYING WTI’s MOTION TO INTERVENE
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White, and Gregory Ahn, and their two companies, Cult of 8, Inc. (“CO8”) and Alcohol by

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Volume, Inc. (“ABV”), which were created to sell and distribute wine. Case No. 17-1430,

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Complaint (“Compl.”), Dkt. No. 1; Case No. 16-5437, First Amended Compl. (“FAC”), Dkt. No.

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18. According to the parties’ allegations, Ahn founded CO8 in 2010 with family loans and an

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initial investment from WTI. Compl. ¶ 14. Scarlett and White then decided to go into business

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with Ahn and incorporated ABV in 2012. Compl. ¶ 17; FAC ¶ 11. The parties allegedly entered

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into an oral “Equal Interest Agreement” where they would all be co-owners of the entire

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enterprise, including CO8 and ABV. Compl. ¶ 22; FAC ¶¶ 10, 46. However, their relationship

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deteriorated, and, in 2015, Ahn and White terminated Scarlett’s employment with CO8. Compl.

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¶ 39; FAC ¶ 25.

United States District Court
Northern District of California

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In August 2016, Scarlett initiated Case No. 17-1430 against White, Ahn, and CO8,

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alleging seventeen different causes of actions, including claims in contract and tort and claims for

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declaratory relief relating to the parties’ ownership interests. Compl. The following November,

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Ahn, White, and CO8 initiated Case No. 16-5437 against Scarlett and ABV, alleging breach of

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fiduciary duty, breach of oral contract, fraud in the inducement, and seeking declaratory relief

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regarding the parties’ respective interests in CO8 and ABV. Dkt. No. 18. In April 2017, the

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parties initiated arbitration proceedings with JAMS3 to resolve certain issues, including the

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ownership of CO8 and ABV. Dkt. No. 65 ¶ D; Opp’n 2.
In November 2017, WTI filed the instant motion to intervene. Mot. According to the

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allegations in WTI’s intervenor complaint, Ahn entered into an arrangement with Steven Signer,

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the managing general partner of WTI, where WTI would invest over $600,000 in CO8 in

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exchange for a 40% ownership interest. Intervenor Compl. (“IC”), Case No. 16-5437, Dkt. No.

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115, at ¶¶ 5-6.4 This arrangement was never formalized, and Ahn later disputed that WTI had any

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equity interest. Compl. ¶ 29; IC ¶ 8. Instead, in 2014 or 2015, Ahn allegedly entered into an

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Fior di Sole, LLC v. Scarlett, Matthew, et al., JAMS Reference No. 1100087495.
An identical intervenor complaint has been filed in Case No. 17-1430 at Dkt. No. 80. The Court
will refer to the intervenor complaints collectively as “Intervenor Complaint” or “IC.”
Case No.: 5:16-cv-05437-EJD
ORDER DENYING WTI’s MOTION TO INTERVENE
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agreement with WTI where CO8 would pay WTI a $3.00 royalty per case for three years, plus

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10% equity in CO8’s Alias brand of wine. IC ¶ 9. In its Intervenor Complaint, WTI seeks a

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“declaration and adjudication of WTI’s rights and ownership between WTI, Ahn and [CO8],”

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including with reference to the Alias brand. Id. ¶ 14. It also seeks to intervene in the pending

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arbitration. Id. ¶ 15.

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II.

LEGAL STANDARDS

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Federal Rule of Civil Procedure 24 provides for two types of intervention—intervention as

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of right and permissive intervention. Under Rule 24(a), a prospective intervenor may intervene in

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litigation as of right when a federal statute confers an unconditional right, or when the prospective
intervenor claims that his interest may, as a practical matter, be impaired by disposition of the

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United States District Court
Northern District of California

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pending action and that interest is not adequately represented by existing parties. Fed. R. Civ. P.

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24(a). The Ninth Circuit has held that to intervene as of right, a prospective intervenor must: (1)

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file a timely motion; (2) identify a significant protectable interest relating to the property that is the

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subject matter of the action; (3) suffer practical impairment of an interest if intervention is not

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granted; and (4) be inadequately represented by existing parties. Arakaki v. Cayetano, 324 F.3d

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1078, 1083 (9th Cir. 2003). Failure to satisfy any of these requirements is fatal to a motion to

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intervene. Perry v. Proposition 8 Official Proponents, 587 F.3d 947, 950 (9th Cir.2 009). If all

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four requirements are satisfied, a district court must grant the motion to intervene. United States v.

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State of Washington, 86 F.3d 1499, 1503 (9th Cir. 1996).

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Under Rule 24(b), the second type of intervention is permissive intervention. Fed. R. Civ.

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P. 24(b). The Ninth Circuit has held that a court may grant permissive intervention when the

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prospective intervenor files a timely application, shares a common question of law or fact with the

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main action, and the court has an independent basis for jurisdiction over intervenor’s claims.

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Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). Unlike intervention as of right, even if

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all three requirements are satisfied, the district court has discretion to deny permissive

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intervention. Id.

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Further, Rule 24(c) provides that a motion to intervene must “state the grounds for
Case No.: 5:16-cv-05437-EJD
ORDER DENYING WTI’s MOTION TO INTERVENE
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intervention and be accompanied by a pleading that sets out the claim or defense for which

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intervention is sought.” Fed. R. Civ. P. 24(c).

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III.

DISCUSSION
WTI’s motion does not specifically identify which type of intervention it seeks, but states

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that “[p]ursuant to F.R.C.P. 24, [it] moves to intervene in this action as it claims an interest

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relating to the property or transaction that is the subject of this action, and is so situated that

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disposing of the action may as a practical matter impair or impede WTI's ability to protect its

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interest . . . .” Mot. 1-2. Because this parrots the language of Rule 24(a) for intervention as of

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right, the Court construes WTI’s motion as such.
Before turning to the merits, the Court notes that WTI’s motion does not conform to the

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United States District Court
Northern District of California

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requirements of this District’s Civil Local Rules. WTI states that it “moves to intervene” but does

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not provide a memorandum of supporting points and authorities. Civil L.R. 7-2(b), 7-4. WTI also

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does not provide a proposed order. Civil L.R. 7-2(c). Other courts in this District have denied

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relief when faced with similar deficiencies. See, e.g., Freeman v. Alta Bates Summit Med. Ctr.

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Campus, et al., No. C 04-2019 SBA, 2004 WL 2326369, at *7 (N.D. Cal. Oct. 12, 2004) (denying

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motion to dismiss without prejudice when party failed to comply with Civil L.R. 7-4).
However, even if the Court were to look past WTI’s procedural deficiencies and its entire

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submission as a motion to intervene, WTI’s motion fails on the merits. First, WTI’s motion is not

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timely. WTI waited nearly fifteen months to intervene from the time that the first of these related

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actions was filed. Since then, motions to dismiss have been decided, pleadings have been

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amended, and arbitration proceedings have been initiated. See, e.g., Case No. 16-5437, Dkt. Nos.

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18, 53; Case No. 17-1430, Dkt. No. 34. Even though WTI claims that it “has been kept in the

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dark” by Ahn, see Reply, Case No. 16-5437, Dkt. No. 124, at 2,5 the filing of these actions in 2016

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was public record and WTI could have intervened at any point since. Accordingly, WTI has failed

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to meet this “threshold requirement” for intervention and denial is warranted. League of United

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An identical reply has been filed in Case No. 17-1430 at Dkt. No. 86. The Court will refer to the
replies collectively as “Reply.”
Case No.: 5:16-cv-05437-EJD
ORDER DENYING WTI’s MOTION TO INTERVENE
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Latin Am. Citizens v. Wilson, 131 F.3d 1297, 1302 (9th Cir. 1997) (“[I]f we find that the motion to

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intervene was not timely, we need not reach any of the remaining elements.”) (internal citation and

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quotation marks omitted).
Second, WTI has not shown that it stands to “suffer practical impairment of an interest if

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intervention is not granted.” Fed. R. Civ. P. 24(a). In its motion, WTI appears to identify two

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alleged “interests” which it fears are at risk: an alleged 40% ownership interest in CO8 and an

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alleged 10% ownership interest in the Alias wine brand. See IC ¶¶ 6, 8, 9, 14; Reply 4. WTI need

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not be a party to the current lawsuits to protect these alleged interests. The parties in these suits

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seek adjudication of a variety of contract and tort claims, as well as a declaration of ownership

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interests as between them. If, indeed, WTI determines that litigation is necessary to defend its

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United States District Court
Northern District of California

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own alleged ownership interests or recover money it believes it is owed as a result of these

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interests, it can do so by bringing a separate suit. Accordingly, WTI’s motion fails on this basis as

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well.

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Finally, the Court notes that the other relief that WTI seeks—the ability to intervene in the

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currently pending arbitration—is not something the Court can grant. The JAMS Arbitration Rules

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leave it to the arbitrator to determine whether a third party can participate in a pending arbitration.

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See JAMS Comprehensive Arbitration Rules and Procedures,6 Rule 6(f) (“Where a third party

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seeks to participate in an Arbitration already pending . . . the Arbitrator shall determine such

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request . . . .”). Accordingly, this request from WTI also fails.

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IV.

CONCLUSION

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For the foregoing reasons, WTI’s motion to intervene is DENIED.

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IT IS SO ORDERED.

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Dated: March 1, 2018
______________________________________
EDWARD J. DAVILA
United States District Judge

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The current version of the JAMS Comprehensive Arbitration Rules and Procedures, effective
July 1, 2014, is available at https://www.jamsadr.com/rules-comprehensive-arbitration.
Case No.: 5:16-cv-05437-EJD
ORDER DENYING WTI’s MOTION TO INTERVENE
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