Luong v. Super Micro Computer, Inc. et al

Filing 34

ORDER GRANTING 17 DEFENDANTS' MOTION TO COMPEL ARBITRATION AND STAY ACTION. Signed by Judge Beth Labson Freeman on 11/4/2024. (blflc1, COURT STAFF) (Filed on 11/4/2024)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 BOB K. LUONG, Plaintiff, 8 v. 9 10 United States District Court Northern District of California Case No. 24-cv-02440-BLF 11 SUPER MICRO COMPUTER, INC., a Delaware corporation, and CHARLES LIANG, 12 Defendants. ORDER GRANTING DEFENDANTS’ MOTION TO COMPEL ARBITRATION AND STAY ACTION [Re: ECF 17] 13 14 Plaintiff Bob K. Luong (“Luong”) alleges that his former employer, Defendant Super 15 Micro Computer, Inc. (“SMCI”), and its CEO, Defendant Charles Liang “Liang”), unlawfully 16 retaliated against him for reporting their misleading accounting practices and other misconduct. 17 The operative first amended complaint (“FAC”) asserts claims for (1) whistleblower retaliation 18 under the Sarbanes-Oxley Act of 2002 (“SOX”), 18 U.S.C. § 1514A; (2) whistleblower retaliation 19 in violation of California Labor Code § 1102.5; and (3) retaliation in violation of California’s Fair 20 Employment and Housing Act (“FEHA”), Cal. Gov’t Code § 12940(h). See FAC, ECF 6. Defendants move to compel arbitration of the two state law claims and to stay this action, 21 22 including the non-arbitrable SOX claim,1 until arbitration of the state law claims is completed. 23 See Defs.’ Mot., ECF 17. Plaintiff Luong opposes both the motion to arbitrate and the motion to 24 stay the SOX claim. Defendants’ motion to compel arbitration and stay the action is GRANTED for the reasons 25 26 discussed below. 27 28 The SOX claim cannot be compelled to arbitration in light of the statute’s anti-arbitration provision codified at 18 U.S.C. § 1514A(e)(2). 1 United States District Court Northern District of California 1 I. BACKGROUND 2 SMCI is a publicly traded company that manufactures computer server, storage, and 3 networking solutions, and provides system management software. See Chan Decl. ¶ 2, ECF 17-2. 4 SMCI is headquartered in San Jose, California, and operates production facilities in California, 5 Taiwan, and the Netherlands. See id. 6 Offer Letter 7 On December 19, 2012, SMCI extended a written offer of employment to Luong for the 8 position of Director, Technology Enabler, in its San Jose facility. See Chan Decl. Ex. 1 (Offer 9 Letter). The offer letter indicated that Luong’s starting compensation would be $170,000, and that 10 Luong would be granted stock options and eligibility to participate in employment benefits plans. 11 See id. The offer letter stated expressly that employment was contingent on Luong “signing all 12 required employment documents, including the Employee Acknowledgment and Agreements form 13 (which includes an At Will Employment Agreement, Confidentiality and Information Systems 14 Agreement and an Arbitration Agreement) and our Employee Confidential Information, Non- 15 Solicitation And Inventions Agreement.” Id. (italics added). Luong was directed to indicate his 16 acceptance of the offer by signing and returning the offer letter by December 26, 2012. See id. 17 Luong actually signed the offer letter on December 28, 2012. See Chan Decl. ¶ 3 & Ex. 1 (Offer 18 Letter). 19 Employee Acknowledgement Form 20 Luong also signed a one-page Employee Acknowledgement Form on December 28, 2012, 21 acknowledging that: he received SMCI’s Employee Handbook and was given an opportunity to 22 read it; his employment was at will and he was bound by SMCI’s Information Systems policy and 23 Confidential Information policy; and he agreed to final and binding arbitration of disputes with 24 SMCI as a condition of his employment. See Chan Decl. ¶ 5 & Ex. 2 (Employee 25 Acknowledgement Form). The arbitration agreement takes up the bottom third of the one-page 26 form, reading as follows: 27 28 2 1 Arbitration Agreement 2 As a condition of accepting and/or continuing employment with the Company, I agree to final and binding arbitration of Disputes between me and the Company, in accordance with the Arbitration of Disputes policy, the terms of which are incorporated by reference herein. I understand and agree that the Arbitration of Disputes policy (the terms of which control in the event of a conflict) requires arbitration of all Disputes which involve the violation of my rights or the Company’s rights arising from my employment or the termination of my employment, including but not limited to violations of rights arising from employment discrimination and/or wrongful termination of employment, breach of contract or other wrongful conduct, or breach of the Company’s policies, rights or contracts respecting confidential information and/or trade secrets. I understand and agree that my agreement to arbitrate Disputes means that I have voluntarily surrendered my rights to civil litigation and a trial by jury and any associated rights of appeal. 3 4 5 6 7 8 United States District Court Northern District of California 9 10 Chan Decl. Ex. 2 (Employee Acknowledgement Form). Plaintiff’s signature appears immediately 11 below this language. See id. 12 Arbitration of Disputes Policy 13 The Arbitration of Disputes policy (“Policy”) referred to by and incorporated into the 14 Employee Acknowledgement Form is contained in the SMCI employee handbook. See Chan 15 Decl. ¶ 6. The Policy, comprising 5 pages of the handbook, provides in relevant part that “[a]ll 16 employees are required to agree to arbitrate Disputes (as described below) as a condition of 17 employment” with SMCI. Chan Decl. Ex. 3 (Policy). “Covered Disputes” are defined to include 18 “any complaint that there has been a violation” of the employee’s rights by SMCI or its officers, 19 employees, or agents. Id. The Policy describes the procedure for requesting arbitration, and states 20 that “[a]ll questions concerning arbitrability, including but not limited to whether a party has an 21 obligation to arbitrate a Dispute . . . shall be decided by a court not an arbitrator.” Id. The 22 employee “will not be responsible for any part of the arbitrator’s fees and costs.” Id. The last 23 paragraph of the policy, written in all capital letters and bolded, states: 24 25 26 27 28 YOU UNDERSTAND THAT, BY ACCEPTING EMPLOYMENT AND/OR CONTINUING YOUR EMPLOYMENT WITH THE COMPANY, YOU AGREE TO EXCLUSIVE, FINAL AND BINDING ARBITRATION OF ANY COVERED DISPUTES BETWEEN YOU AND THE COMPANY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS POLICY, AND YOU VOLUNTARILY AGREE TO SURRENDER YOUR RIGHTS TO CIVIL LITIGATION AND A TRIAL BY JURY AND ANY ASSOCIATED RIGHTS OF APPEAL. 3 1 2 Present Lawsuit and Present Motion 3 Luong filed the present lawsuit against SMCI and Liang on April 24, 2024, and filed the 4 operative FAC on May 6, 2024, asserting claims for retaliation under SOX, California Labor Code 5 § 1102.5, and FEHA. See Compl., ECF 1; FAC, ECF 6. Defendants requested that Luong agree 6 to arbitrate his state law claims pursuant to the parties’ written arbitration agreement, but Luong 7 refused. See Jordan Decl. ¶¶ 2-3. Defendants thereafter filed the present motion to compel 8 arbitration of the state claim claims (Claims 2 and 3) and to stay this action, including the non- 9 arbitrable SOX claim (Claim 1), pending completion of arbitration. 10 II. 11 United States District Court Northern District of California Id. LEGAL STANDARD The Federal Arbitration Act (“FAA”) embodies a “national policy favoring arbitration and 12 a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or 13 procedural policies to the contrary.” AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 345-46 14 (2011) (internal quotation marks and citations omitted). “The FAA, 9 U.S.C. § 1 et seq., requires 15 federal district courts to stay judicial proceedings and compel arbitration of claims covered by a 16 written and enforceable arbitration agreement.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 17 1175 (9th Cir. 2014). 18 “Generally, in deciding whether to compel arbitration, a court must determine two 19 ‘gateway’ issues: (1) whether there is an agreement to arbitrate between the parties; and (2) 20 whether the agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 21 2015). The first of these issues is non-delegable and must be decided by the district court. See 22 Ahlstrom v. DHI Mortg. Co., Ltd., L.P., 21 F.4th 631, 635 (9th Cir. 2021) (“[P]arties cannot 23 delegate issues of formation to the arbitrator.”). The second issue is presumptively reserved for 24 the court, but the parties may agree to delegate it to the arbitrator. See id. at 634; see also 25 Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981, 985 (9th Cir. 2017) (“[W]hether 26 an arbitration clause in a concededly binding contract applies to a given controversy” is 27 “presumptively reserved for the court” unless the parties clearly and unmistakably delegate that 28 issue to the arbitrator). 4 United States District Court Northern District of California 1 III. DISCUSSION 2 As noted above, Luong asserts a single federal claim for retaliation under SOX (Claim 1) 3 and two state law claims for retaliation under California Labor Code § 1102.5 and FEHA (Claims 4 2 and 3). The SOX claim is asserted against both SMCI and Liang. However, the parties agree 5 that the SOX claim cannot be compelled to arbitration. See 18 U.S.C. § 1514A(e)(2) (“No 6 predispute arbitration provision shall be valid or enforceable, if the agreement requires arbitration 7 of a dispute arising under this section.”). The state law claims are asserted against only SMCI. 8 Defendants move to compel arbitration of the state law claims, arguing that Luong and SMCI 9 entered into an arbitration agreement that is governed by the FAA, the arbitration agreement is 10 enforceable, and the state law claims fall within the scope of the arbitration agreement. 11 Defendants move to stay this litigation, including the SOX claim, pending arbitration of the state 12 law claims. 13 Luong does not dispute that the asserted arbitration agreement is governed by the FAA, as 14 “[e]mployment contracts, except for those covering workers engaged in transportation, are 15 covered by the FAA.” See E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002). Nor does 16 Luong dispute that his state law claims fall within the scope of the asserted arbitration agreement. 17 However, he contends that the arbitration agreement is unenforceable on the grounds that it is 18 unconscionable and that it violates SOX. He further contends that even if the Court grants 19 Defendants’ motion to compel arbitration of the state law claims, the Court should deny 20 Defendants’ motion to stay with respect to the SOX claim and instead allow the SOX claim to 21 proceed in this Court. 22 A. Luong and SMCI Entered into an Arbitration Agreement 23 In determining whether an arbitration agreement exists, a district court applies “ordinary 24 state-law principles that govern the formation of contracts.’” Reichert v. Rapid Invs., Inc., 56 25 F.4th 1220, 1227 (9th Cir. 2022) (internal quotation marks and citation omitted). Under California 26 law, an arbitration agreement generally must be memorialized in writing. See Pinnacle Museum 27 Tower Assn. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012). “A party’s acceptance 28 of an agreement to arbitrate may be express, as where a party signs the agreement,” or the party’s 5 1 acceptance may be implied in fact. Id. “An arbitration clause within a contract may be binding on 2 a party even if the party never actually read the clause.” Id. “The party seeking arbitration bears 3 the burden of proving the existence of an arbitration agreement, and the party opposing arbitration 4 bears the burden of proving any defense, such as unconscionability.” Id. United States District Court Northern District of California 5 SMCI submits the following documents: a copy of the offer letter signed by Luong, 6 acknowledging that his offer of employment was contingent on his signing all required 7 employment documents, including documents containing an arbitration agreement, see Chan Decl. 8 ¶ 3 & Ex. 1 (Offer Letter); a copy of the Employee Acknowledgement Form signed by Luong, 9 expressly agreeing to final and binding arbitration of disputes with SMCI as a condition of his 10 employment, see Chan Decl. ¶ 5 & Ex. 2 (Employee Acknowledgement Form); and a copy of the 11 Arbitration of Disputes policy contained in the employee handbook and incorporated into the 12 Employee Acknowledgement Form, Chan Decl. Ex. 3 (Policy). This evidence satisfies 13 Defendants’ burden to prove the existence of an arbitration agreement between Luong and SMCI. 14 Luong does not dispute signing the offer letter or Employee Acknowledgement Form. He 15 submits a declaration statement that he “was not provided with the employee handbook containing 16 the Arbitration of Disputes Policy referenced in the purported arbitration agreement and was not 17 aware of the terms contained therein prior to signing the purported arbitration agreement.” Luong 18 Decl. ¶ 4, ECF 23-1. This statement is insufficient to undermine Defendants’ showing that the 19 parties entered into an arbitration agreement, as the Employee Acknowledgement Form signed by 20 Luong states expressly that Luong did receive the Arbitration of Disputes policy and agreed to be 21 bound by it. See Pinnacle, 55 Cal. 4th at 236 (“An arbitration clause within a contract may be 22 binding on a party even if the party never actually read the clause.”); see also Sanchez v. Valencia 23 Holding Co., LLC, 61 Cal. 4th 899, 915 (2015) (rejecting argument that plaintiff did not read 24 arbitration clause, observing that “it is generally unreasonable . . . to neglect to read a written 25 contract before signing it”). 26 B. The Arbitration Agreement is Enforceable 27 If the party seeking arbitration meets its burden to prove the existence of an arbitration 28 agreement, the party opposing arbitration bears the burden to prove any defense. See Pinnacle, 55 6 1 Cal. 4th at 236. Luong argues that the arbitration agreement is unenforceable because it is 2 unconscionable and because it violates SOX. Neither argument is meritorious. United States District Court Northern District of California 3 1. Unconscionability 4 “[G]enerally applicable contract defenses, such as . . . unconscionability, may be applied to 5 invalidate arbitration agreements without contravening the FAA or California law.” OTO, L.L.C. 6 v. Kho, 8 Cal. 5th 111, 125 (2019) (internal quotation marks and citation omitted, alterations in 7 original). “Both procedural and substantive unconscionability must be shown for the defense to be 8 established[.]” Id. “The procedural element addresses the circumstances of contract negotiation 9 and formation, focusing on oppression or surprise due to unequal bargaining power.” Id. (internal 10 quotation marks and citation omitted). “Substantive unconscionability pertains to the fairness of 11 an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.” 12 Id. (internal quotation marks and citation omitted). “The burden of proving unconscionability 13 rests upon the party asserting it.” Id. at 126. 14 Luong asserts that the procedural unconscionability requirement is met because he was 15 required to sign the Employee Acknowledgement Form containing the arbitration agreement as a 16 condition of employment, and because the Arbitration of Disputes policy was “buried” in the 17 employee handbook and “merely incorporated by reference” into the Employee Acknowledgement 18 Form. Taking those arguments in reverse order, the Court finds Luong’s characterization of the 19 arbitration policy as “buried” in the employee handbook to be inaccurate. The policy is 5 pages in 20 length, contains subheadings that make its various provisions easy to access, and concludes with a 21 bolded paragraph written in all capital letters that unequivocally provides for binding arbitration. 22 The 1-page Employee Acknowledgement Form calls out the key aspects of the arbitration 23 agreement, specifically that it is a condition of employment and encompasses all disputes arising 24 out of employment or termination of employment. Given Luong’s signature on the 1-page 25 Employee Acknowledgement Form directly above the paragraph addressing arbitration, his 26 assertion that he did not have notice of that term of employment is wholly unpersuasive. 27 28 Moreover, that fact that the arbitration agreement was a condition of employment does not render it procedurally unconscionable. “Arbitration contracts imposed as a condition of 7 United States District Court Northern District of California 1 employment are typically adhesive.” OTO, 8 Cal. 5th at 126. “The pertinent question, then, is 2 whether circumstances of the contract’s formation created such oppression or surprise that closer 3 scrutiny of its overall fairness is required.” Id. “The circumstances relevant to establishing 4 oppression include, but are not limited to (1) the amount of time the party is given to consider the 5 proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed 6 contract; (3) the length of the proposed contract and the length and complexity of the challenged 7 provision; (4) the education and experience of the party; and (5) whether the party’s review of the 8 proposed contract was aided by an attorney.” Id. at 126-27. Luong had more than a week 9 between the date the offer of employment was extended, December 19, 2012, and the date he 10 accepted, December 28, 2012. There is no evidence that any pressure was exerted on him to sign 11 the offer letter and Employee Acknowledgement Form. The offer letter is 2 pages in length and 12 the Employee Acknowledgement Form containing the arbitration agreement is 1 page in length. 13 Luong is an educated, sophisticated individual who accepted a position with a base salary of 14 $170,000. It is unclear whether Luong engaged an attorney to help him review the proposed 15 contract, but he certainly had the opportunity to do so. Based on this record, the Court finds that 16 Luong has failed to carry his burden of proving procedural unconscionability. 17 Nor has Luong proved substantive unconscionability. “In evaluating substantive 18 unconscionability, courts often look to whether the arbitration agreement meets certain minimum 19 levels of fairness.” Murrey v. Superior Ct., 87 Cal. App. 5th 1223, 1247-48 (2023). “[A]t a 20 minimum, a mandatory employment arbitration agreement must (1) provide for neutral arbitrators, 21 (2) provide for more than minimal discovery, (3) require a written award that permits limited 22 judicial review, (4) provide for all of the types of relief that would otherwise be available in court, 23 and (5) require the employer to pay the arbitrator’s fees and all costs unique to arbitration.” Id. 24 (citation omitted). Luong argues that the arbitration agreement at issue here does not provide for 25 adequate discovery and may require him to pay costs unique to arbitration, such as Defendants’ 26 costs incurred in responding to his discovery requests and administrative and facility fees. The 27 California Supreme Court has rejected the notion that an arbitration agreement is unconscionable 28 merely because it grants the arbitrator discretion over what discovery may be taken. See 8 1 Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 105 & n.10 (2000). With 2 respect to the costs of arbitration, the Arbitration of Disputes policy states that the employee “will 3 not be responsible for any part of the arbitrator’s fees and costs.” Chan Decl. Ex. 3 (Policy). The 4 policy does require that each side pay its own discovery costs, as is customary in litigation. See id. 5 The Court does not read the policy to require Luong to pay Defendants’ costs in responding to 6 discovery requests, or any costs that are unique to arbitration, and Luong has not pointed to any 7 provision of the policy clearly imposing such costs on him. United States District Court Northern District of California 8 The reliance Luong places on Ronderos v. USF Reddaway, Inc., 114 F.4th 1080 (9th Cir. 9 2024), and similar cases is misplaced, as those cases involved unsophisticated individuals in 10 factual circumstances dissimilar to this case. See, e.g., Ronderos, 114 F.4th 1080 (applicant for 11 position of line haul manager pushed to sign agreement immediately and on site); OTO, 8 Cal. 5th 12 111 (agreement presented to low level worker at his workspace with expectation that he sign it 13 immediately). 14 15 2. Asserted Violation of SOX Luong contends that the arbitration agreement is unenforceable because it encompasses all 16 claims arising out of his employment, including his SOX claim, and thus runs afoul of SOX’s 17 prohibition against arbitration agreements. The relevant provision of SOX reads as follows: “No 18 predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration 19 of a dispute arising under this section.” 18 U.S.C.A. § 1514A(e)(2). According to Luong, that 20 provision invalidates the arbitration agreement at issue here entirely, with respect to both his SOX 21 claim and his non-SOX claims. 22 Luong relies on out-of-circuit decisions from the District of Puerto Rico and the Western 23 District of Arkansas to support his position. See Stewart v. Doral Fin. Corp., 997 F. Supp. 2d 129 24 (D.P.R. 2014); Laubenstein v. Conair Corp., No. 5:14-CV-05227, 2014 WL 6609164 (W.D. Ark. 25 Nov. 19, 2014). Those decisions applied § 1514A(e)(2) to invalidate arbitration agreements as to 26 both SOX claims and non-SOX claims where the claims arose from the same facts, reasoning that 27 under those circumstances allowing arbitration of the non-SOX claims would frustrate the purpose 28 of § 1514A(e)(2). 9 United States District Court Northern District of California 1 Defendants argue that Luong’s reading of the SOX prohibition against arbitration 2 agreements is too broad, relying primarily on a California district court decision that rejected the 3 approach of Stewart and Laubenstein. See Endresen v. Banc of California, Inc., No. SACV 18- 4 00899-CJC(DFMx), 2018 WL 11399501, at *3 (C.D. Cal. Sept. 20, 2018). The Endresen court 5 emphasized that the prohibition on arbitration set forth in § 1514A(e)(2) is expressly limited to 6 claims arising under SOX, and that “[d]enying arbitration on some claims because there are also 7 non-arbitrable claims ignores the FAA’s ‘emphatic federal policy’ in favor of arbitration.” Id. 8 The Endresen court acknowledged that the FAA may be overridden by a clear congressional 9 command, but concluded that SOX does not contain a clear congressional mandate that would 10 extend § 1514A(e)(2) beyond the scope of claims brought under SOX. See id. 11 This Court agrees with the reasoning of Endresen, specifically the conclusion that it would 12 be improper to refuse to enforce a valid arbitration agreement as required under the FAA, absent a 13 clear congressional mandate. In this Court’s view, a judicial determination that the purpose of 14 SOX’s anti-arbitration provision might be frustrated by compelling arbitration of non-SOX claims 15 arising from the same facts is an insufficient basis to override the FAA. Moreover, this Court 16 agrees with the Endresen court’s observation that “it is not clear why arbitration of non-SOX 17 claims would frustrate any purpose of section 1514A, since Plaintiff’s SOX claim still remains 18 before the court.” Endresen, 2018 WL 11399501, at *3 19 C. The State Law Claims Fall Within the Scope of the Arbitration Agreement 20 There is no dispute that Luong’s state law claims for retaliation, which clearly arise out of 21 his employment and termination, fall within the scope of the arbitration agreement, and the Court 22 finds that the state law claims do fall within the scope of the agreement. Accordingly, the Court 23 will grant Defendants’ motion to compel arbitration of Luong’s state law claims. 24 D. 25 Defendants move to stay this action, including the SOX claim, pending arbitration of the 26 state law claims. Luong opposes a stay of litigation of his SOX claim, asking the Court to allow 27 his SOX claim to proceed in this forum while his state law claims proceed in arbitration. 28 A Stay of this Action, Including the SOX Claim, is Warranted Where a complaint asserts both arbitrable and non-arbitrable claims, the defendants are not 10 United States District Court Northern District of California 1 entitled to a stay of the non-arbitrable claims as of right, but the district court may in its discretion 2 stay the non-arbitrable claims “under the powers to control its own docket and to provide for the 3 prompt and efficient determination of the cases pending before it.” Leyva v. Certified Grocers of 4 California, Ltd., 593 F.2d 857, 863 (9th Cir. 1979). “A stay should not be granted unless it 5 appears likely the other proceedings will be concluded within a reasonable time in relation to the 6 urgency of the claims presented to the court.” Id. at 864. In Leyva, the Ninth Circuit found that 7 “[i]t would waste judicial resources and be burdensome upon the parties if the district court in a 8 case such as this were mandated to permit discovery, and upon completion of pretrial proceedings, 9 to take evidence and determine the merits of the case at the same time as the arbitrator is going 10 through a substantially parallel process.” Id. 11 Other courts in this district have found it appropriate to stay a SOX claim pending 12 arbitration of non-SOX claims arising from the same facts. See, e.g., Anderson v. Salesforce.com, 13 Inc., No. 18-CV-06712-PJH, 2018 WL 6728015, at *3 (N.D. Cal. Dec. 21, 2018). The Anderson 14 court found it “appropriate to stay plaintiff’s SOX claim and the entire action because plaintiff’s 15 claims all arise from the same conduct and because allowing the arbitration to resolve will 16 simplify issues of law or questions of fact in future proceedings.” Id. As in Anderson, Luong’s 17 non-arbitrable SOX claim and arbitrable state law claims arise from the same conduct, and staying 18 litigation of the SOX claim pending arbitration of the state law claims may simplify questions of 19 fact and/or issues of law in future proceedings. 20 Luong argues that such simplification would prejudice his ability to litigate his SOX claim, 21 because discovery in the arbitration will be far more limited than discovery available in district 22 court. He asserts that there is a substantial risk that his SOX claim will be subject to issue 23 preclusion arising from an adverse arbitration decision on the non-SOX claims. Luong urges the 24 Court to deny the requested stay of the SOX claim, citing an out-of-circuit decision in which the 25 court found it appropriate to allow the SOX claim to be litigated in parallel with arbitration of the 26 non-SOX claims. See Vuoncino v. Forterra, Inc., No. 3:21-CV-01046-K, 2022 WL 868274, at *8 27 (N.D. Tex. Feb. 28, 2022), report and recommendation adopted, No. 3:21-CV-01046-K, 2022 WL 28 865893 (N.D. Tex. Mar. 22, 2022). 11 United States District Court Northern District of California 1 While Luong’s prejudice argument has some facial appeal, he has not demonstrated that he 2 is likely to be prejudiced by any limitations in the arbitration proceeding. His prejudice argument 3 is premised on the assumption that he will not prevail in arbitration, and thus will be denied a fair 4 opportunity to litigate his SOX claim because he will be bound by an adverse arbitration decision 5 based on limited discovery. Luong’s apparent assumption that he will lose at arbitration is not 6 founded on any record evidence. Moreover, when the Court inquired at the hearing whether the 7 arbitrator’s decision on the non-SOX claims would be binding on this Court during subsequent 8 litigation of the SOX claim, Luong’s counsel was unable to direct the Court to any controlling 9 authority. Accordingly, the Court finds Luong’s argument of prejudice to be purely speculative. 10 The Court in the exercise of its discretion finds that a stay of this litigation, including the 11 SOX claim, is warranted for reasons of economy and efficiency. Luong’s SOX claim arises from 12 the same facts as his non-SOX claims, and under those circumstances allowing this case to 13 proceed in parallel to the arbitration likely would result in a waste of judicial resources and 14 imposition of an undue burden on Defendants. Important to this decision is the representation of 15 Defendants’ counsel at the hearing that the parties are poised to commence arbitration as soon as 16 the Court issues its ruling. The Court will require the parties to begin arbitration within 60 days 17 after this order. 18 IV. 19 ORDER (1) Defendants’ motion to compel arbitration and stay action is GRANTED. Plaintiff’s 20 state law claims (Claims 2 and 3) are hereby COMPELLED to arbitration. This action, including 21 Plaintiff’s SOX claim (Claim 1), is STAYED pending arbitration of the state law claims. 22 (2) The parties SHALL commence arbitration within 60 days after the date of this 23 order and SHALL file a joint status report by February 3, 2025, advising the Court of the status of 24 arbitration. 25 (3) This order terminates ECF 17. 26 27 Dated: November 4, 2024 _____________________________________ BETH LABSON FREEMAN United States District Judge 28 12

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