Youngevity International, Corp. v. Smith et al

Filing 565

ORDER Granting Plaintiffs' Motion to Dismiss and Compel Arbitration 410 . Signed by Judge Barry Ted Moskowitz on 7/16/2018. (sjm)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 YOUNGEVITY INTERNATIONAL CORP., et al., 15 ORDER GRANTING PLAINTIFFS’ MOTION TO DISMISS AND COMPEL ARBITRATION [ECF NO. 410] Plaintiffs, 13 14 Case No.: 16-cv-704-BTM-JLB v. TODD SMITH, et al., Defendants. 16 17 18 Wakaya Perfection, LLC, et al., Counter Claimants, 19 20 21 v. Youngevity International Corp. Counter Defendants. 22 23 Presently before the Court is Plaintiffs’ and Counterclaim Defendants’ motion to 24 25 26 27 28 dismiss and compel arbitration against Counterclaimants Maxandra Desrosiers, Kurt Venekamp, Theresa Venekamp, and Five Points Consulting. (ECF No. 410.) For the reasons discussed below, the Court GRANTS Plaintiffs’ motion. // 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. BACKGROUND On April 21, 2017, Counterclaimants moved for leave to add four former Youngevity distributors as counterclaimants: (1) Maxandra Desrosiers; (2) Kurt Venekamp; (3) Theresa Venekamp; (4) and Five Points Consulting. On May 26, 2017, Counterclaim Defendants opposed the motion, arguing that it was futile because the proposed counterclaimants were subject to arbitration agreements. However, because it was unclear whether Counterclaim Defendants had a sincere desire to compel arbitration or just preclude the proposed counterclaimants from litigating their claims, the Court declined to construe the opposition as a motion to compel arbitration and granted Counterclaimants leave to amend on December 13, 2017. On January 3, 2018, Counterclaim Defendants formally moved the Court to dismiss and compel arbitration. The Court addresses each parties’ arguments below. II. DISCUSSION The Federal Arbitration Act (“FAA”) permits “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States district court . . . for an order directing that . . . arbitration proceed in the manner provided for in [the arbitration] agreement. 9 U.S.C. § 4. “By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis in original). Thus, arbitration agreements “must be enforced, absent a ground for revocation of the contractual agreement.” Id. A court’s role is limited to “determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (citing Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000)). Counterclaim Defendants move to dismiss and compel the four former distributor 2 1 Counterclaimants to arbitrate claims they argue arise out of binding distributor 2 agreements. Each Distributor Agreement contains an arbitration provision that states: 3 4 5 6 7 8 9 10 In the event of a dispute with the Company, Distributor and the Company agree to participate in mediation in an earnest attempt to resolve the dispute prior to submitting it to binding arbitration pursuant to the Commercial Arbitration Rules then in effect of the American Arbitration Association, provided, however, that injunctive relief sought by the Company against any party shall be excluded from this clause. Such Arbitration shall occur in San Diego, California. Louisiana Distributors, however, may arbitration in New Orleans, Louisiana. (CC, Ex. A, § J9.) Counterclaimants oppose this motion and argue that Counterclaim Defendants 11 have waived their right to arbitrate. In the Ninth Circuit, “[t]he party arguing waiver of 12 arbitration bears a heavy burden of proof.” Britton v. Co-op Banking Group, 916 F.2d 13 1405, 1412 (9th Cir. 1990) (internal citations omitted). To carry this burden, the 14 opposing party must show that the other party (1) had knowledge of the right to compel 15 arbitration; (2) acted inconsistently with that right; and (3) resulting prejudice. Id. Here, 16 there is no dispute that Counterclaim Defendants had knowledge of their right to compel 17 arbitration. As such, the Court will focus on the second and third elements. 18 As to the second element, the Court finds that Counterclaim Defendants did not act 19 inconsistently with their arbitration rights. The Court, out of an abundance of caution, 20 declined to construe Counterclaim Defendants’ opposition as a motion to compel 21 arbitration because it was unclear whether they held a sincere interest in seeking 22 arbitration. Counterclaimants argue that at that point, Counterclaim Defendants should 23 have instead sought to compel arbitration and their failure to do so is inconsistent with an 24 intent to arbitrate. Nevertheless, whatever doubts the Court held were dispelled when 25 Counterclaim Defendants filed the instant motion. While there is “no concrete test to 26 determine whether a party has engaged in acts that are inconsistent with its right to 27 arbitrate,” seeking an order from the Court compelling arbitration only a few weeks after 28 the former distributor were granted leave to join as counterclaimants is not inconsistent 3 1 with a right to arbitrate. See Martin v. Yasuda, 829 F.3d 1118, 1126 (9th Cir. 2016). 2 Counterclaimants also argue that Counterclaim Defendants have acted 3 inconsistently with the right to compel arbitration because they have continued to conduct 4 discovery, including taking the depositions of Desrosiers and the Venekamps, even after 5 April 21, 2017. Counterclaim Defendants, on the other hand, argue that they have not 6 acted inconsistently because they merely sought discovery on non-arbitrable claims. 7 There is no denying that because of the nature of the claims, the discovery requests and 8 depositions produced information relevant to the former distributor Counterclaimants’ 9 claims. However, Counterclaim Defendants still had to defend themselves against all the 10 other Counterclaimants who were not subject to arbitration agreements. The action 11 would have proceeded as the discovery they sought was relevant to the pre-existing case 12 regardless of whether the former distributor Counterclaimants would eventually join the 13 action. As such, conducting discovery on pre-existing claims is not an act that is 14 inconsistent with an intent to arbitrate. See Conde v. Open Door Marketing, LLC, 15-cv- 15 04080-KAW, 2017 WL 5172271, at *6 (N.D. Cal. Nov. 8, 2017) (“Thus, to the extent 16 that Defendant 2020 participated in discovery and case management, those actions were 17 necessitated by a suit that would have proceeded regardless of the outcome of a motion to 18 compel arbitration.”). Moreover, though Counterclaim Defendants did eventually assert 19 claims against Desrosiers and Mr. Venekamp, they explicitly stated that they did not 20 intend to waive their right to arbitration and only pled in the alternative. 21 As to the third element, the Court finds that Counterclaimants have not met their 22 burden of establishing prejudice. “[I]n order to establish prejudice, the plaintiffs must 23 show that, as a result of the defendants having delayed seeking arbitration, they have 24 incurred costs they would not otherwise have incurred . . . or that the defendants have 25 received an advantage from litigating in federal court that they would not have received 26 in arbitration.” Id. Here, Counterclaimants did not incur unnecessary expenses because 27 Counterclaim Defendants would have subpoenaed and deposed Desrosiers and the 28 Venekamps regardless of whether Counterclaim Defendants pursued arbitration sooner 4 1 because the information they sought was relevant to the operative pleadings. As such, 2 Desrosiers and the Venekamps did not incur unnecessary expenses and they cannot 3 sufficiently establish prejudice from engaging in discovery in relation to the non- 4 arbitrable claims. See Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 697 (9th Cir. 5 1986). Additionally, Counterclaimants have not shown how Five Point Consulting has 6 suffered prejudice. Accordingly, the Court finds that Counterclaim Defendants have not 7 waived their right to arbitration. The Court grants the motion to dismiss and compel 8 arbitration. 9 III. CONCLUSION 10 For the reasons discussed above, the Court GRANTS Plaintiffs’ and Counterclaim 11 Defendants’ motion to dismiss and compel arbitration. (ECF No. 410.) Upon granting a 12 motion to compel arbitration, a court must issue an “order directing the parties to proceed 13 to arbitration in accordance with the terms of the [arbitration] agreement.” 9 U.S.C. § 4. 14 Counterclaimants Maxandra Desrosiers, Kurt Venekamp, Theresa Venekamp, and 15 Five Points Consulting and Counterclaim Defendants shall proceed to arbitration in 16 accordance with the terms of their arbitration agreements. Further, because Plaintiffs 17 only pled counterclaims against Maxandra Desrosiers and Kurt Venekamp in the 18 alternative, the Court hereby dismisses those counterclaims as the Court has granted 19 Plaintiffs’ motion to dismiss and compel arbitration. 20 IT IS SO ORDERED. 21 Dated: July 18, 2018 22 23 24 25 26 27 28 5

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