Ma et al v. Golden State Renaissance Ventures, LLC, et al, No. 3:2021cv00856 - Document 58 (N.D. Cal. 2021)

Court Description: ORDER GRANTING MOTIONS TO COMPEL ARBITRATION - Motions terminated: 48 STIPULATION, 42 MOTION to Compel, 44 MOTION for Joinder, 45 MOTION to Compel. The parties shall file a notice within 14 days of the final disposition of the arbitration requesting that the stay be lifted or the case dismissed. Signed by Judge William H. Orrick on 05/31/2021. (jmdS, COURT STAFF) (Filed on 5/31/2021)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 HUI MA, et al., 7 Plaintiffs, 8 ORDER GRANTING MOTIONS TO COMPEL ARBITRATION v. 9 GOLDEN STATE RENAISSANCE VENTURES, LLC DBA GOLDEN GATE GLOBAL, et al., 10 11 United States District Court Northern District of California Case No. 3:21-cv-00856-WHO Re: Dkt. Nos. 42, 44, 45, 48 Defendants. 12 13 The plaintiffs, five Chinese citizens, invested in and through the defendants, an interrelated 14 15 group of U.S. corporations and their officers, to obtain permanent residence through the EB-5 16 Immigrant Investor Program (“EB-5 Program”). They claim that the defendants misused the 17 money, committed fraud, breached their fiduciary duties, and a host of related claims. The 18 defendants all move to compel the claims to arbitration; the plaintiffs oppose those motions 19 because, according to them, they never assented to the contracts that include arbitration 20 agreements. For the reasons that follow, applying standard contract-law principles, the plaintiffs 21 at least assented to delegate the arbitrability of these claims to the arbitrator. The motions to 22 compel arbitration of all claims against all defendants are granted. BACKGROUND 23 24 I. FACTUAL BACKGROUND 25 A. The Parties 26 Plaintiffs Hui Ma, Ailing Zhao, Rui Zhang, Xi Liu, and Yixuan Wang are Chinese citizens 27 who sought permanent U.S. residence through the federal government’s EB-5 Program. 28 Complaint (“Compl.”) [Dkt. No. 1] ¶ 1. Under that program, in brief, applicants make an 1 investment in a commercial enterprise in the United States that plans to create or preserve at least 2 ten permanent full-time jobs for U.S. workers and can, in return, receive permanent residence. See 3 generally U.S. Citizenship and Immigration Services, EB-5 Immigrant Investor Program, USCIS, 4 https://www.uscis.gov/working-in-the-united-states/permanent-workers/eb-5-immigrant-investor- 5 program. Each plaintiff here made a $500,000 investment. Compl. ¶ 2. Each also paid $40,000 6 in fees to the relevant defendants, as discussed below. Id. United States District Court Northern District of California 7 As a general matter, the Complaint alleges that the defendants used the funds for 8 unauthorized purposes. It also asserts that the remaining assets from the company that was 9 supposed to benefit from the EB-5 funding were then transferred to that company’s directors. 10 Accordingly, the Complaint claims that various defendants committed fraudulent inducement, 11 breached their fiduciary duties, aided and abetted that breach, committed constructive fraud, 12 committed fraudulent concealment, committed conversion, violated California’s Unfair 13 Competition Law, violated the Minnesota Uniform Fraudulent Transfer Act, and failed to disclose 14 information they were required to. 15 Defendant Golden State Renaissance Ventures, LLC, d/b/a Golden Gate Global (“GGG”) 16 owns the “regional center” for the plaintiffs’ investment. Id. ¶ 21. Regional centers are 17 designated by U.S. Citizenship and Immigration Services and are “economic unit[s] . . . involved 18 with promoting economic growth.” U.S. Citizenship and Immigration Services, EB-5 Immigrant 19 Investor Regional Centers, USCIS, https://www.uscis.gov/working-in-the-united- 20 states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant- 21 investor-regional-centers. Defendant GSRV Management, LLC, serves as GGG’s manager. 22 Compl. ¶ 22. Defendant Steven Kay is a member of GGG and manager of GSRV Management. 23 Id. ¶ 25. GGG, GSRV Management, and Kay are collectively the “GGG Defendants.” Defendant 24 GSRV-VTI Management, LLC (“GSRV-VTI”) is designated manager of defendant GSRV-VTI II, 25 LLC (“the Investment LLC”) and GSRV-VTI, LP (“the Investment LP”). Id. ¶ 23–24, 84, 90. 26 Defendant Eric Chelini founded the regional center and was the sole member of GSRV-VTI. Id. ¶ 27 24. Defendant Vertebral Technologies, Inc. (“VTI”), is the company whose stock was issued in 28 exchange for the investment and that was supposed to benefit from it. Id. ¶ 8. 2 United States District Court Northern District of California 1 Three of the plaintiffs—Ma, Zhao, and Wang (collectively, the “LP Plaintiffs”)—invested 2 through the Investment LP. Two of the plaintiffs—Liu and Zhang (collectively, the LLC 3 Plaintiffs”)—invested through the Investment LLC. This motion concerns the various agreements 4 that each plaintiff assented to when carrying out these investments. 5 B. The LP Plaintiffs’ Alleged Agreements 6 As noted, the LP Plaintiffs all invested through the Investment LP. This motion concerns 7 two contractual documents relevant to the LP Plaintiffs. The LP Plaintiffs and the defendants 8 agree that the LP Plaintiffs agreed to and signed subscription agreements (the “LP Subscription 9 Agreements”) that governed the investment in exchange for stock. See Eric Chelini and GSRV- 10 VTI Management’s Motion to Compel Arbitration (“GSRV Mot.”) [Dkt. No. 32] 13; GGG 11 Defendants’ Motion to Compel Arbitration (“GGG Mot.”) [Dkt. No. 45] 9; Plaintiffs’ Omnibus 12 Brief in Opposition (“Oppo.”) [Dkt. No. 49] 5. Those LP Subscription Agreements do not contain 13 an express arbitration provision. See Declaration of Eric Chelini (“Chelini Decl.”) [Dkt. No. 42-1] 14 at 5–12. The other documents are the partnership agreements (the “LP Partnership Agreements”) 15 by which the LP Plaintiffs allegedly became limited partners in the Investment LP. Id. at 32–58. 16 Those documents do contain an arbitration provision. Id. at 57. As explained below, the parties 17 agree that the LP Plaintiffs never signed the documents but they dispute whether the LP Plaintiffs 18 nonetheless agreed to them. 19 C. The LLC Plaintiffs’ Alleged Agreements 20 As noted, the LLC Plaintiffs invested through the Investment LLC. This motion concerns 21 two contractual documents relevant to the LLC Plaintiffs. Like the LP Plaintiffs, the LLC 22 Plaintiffs and the defendants agree that the LLC Plaintiffs agreed to and signed subscription 23 agreements (the “LLC Subscription Agreements”) that governed the investment in exchange for 24 stock. GSRV Mot. 10; Oppo. 12. And like the LP Subscription Agreements, those LLC 25 Subscription Agreements do not contain an express arbitration provision. Chelini Decl. at 60–75. 26 The other documents are the operating agreements (the “LLC Operating Agreements”) that govern 27 the Investment LLC. Id. at 99–135. Those documents do contain an arbitration provision, id. at 28 130, but as explained below the parties dispute whether the LLC Plaintiffs signed and agreed to 3 1 them. 2 II. 3 PROCEDURAL BACKGROUND The plaintiffs filed their Complaint, premised on diversity jurisdiction, on February 3, 4 2021. Chelini and GSRV-VTI filed a motion to compel for themselves, the GGG Defendants filed 5 one for themselves, and VTI filed a notice joining both motions. See generally GSRV Mot.; GGG 6 Mot.; VTI’s Notice of Joinder (“VTI Mot.”) [Dkt. No. 44]. The plaintiffs filed a consolidated 7 opposition. See generally Oppo. LEGAL STANDARD 8 United States District Court Northern District of California 9 The Federal Arbitration Act (“FAA”) governs motions to compel arbitration. 9 U.S.C. §§ 10 1 et seq. Under the FAA, a district court determines: (i) whether a valid agreement to arbitrate 11 exists and, if it does, (ii) whether the agreement encompasses the dispute at issue. Lifescan, Inc. v. 12 Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). “To evaluate the validity of 13 an arbitration agreement, federal courts should apply ordinary state-law principles that govern the 14 formation of contracts.” Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) 15 (internal quotation marks and citation omitted). If the court is satisfied “that the making of the 16 arbitration agreement or the failure to comply with the agreement is not in issue, the court shall 17 make an order directing the parties to proceed to arbitration in accordance with the terms of the 18 agreement.” 9 U.S.C. § 4. “[A]ny doubts concerning the scope of arbitrable issues should be 19 resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 20 1, 24–25 (1983). 21 22 DISCUSSION “It is a settled principle of law that arbitration is a matter of contract.” Ingle, 328 F.3d at 23 1170 (internal quotation marks omitted). As such, “a party cannot be required to submit to 24 arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc. v. Commc’ns 25 Workers of Am., 475 U.S. 643, 648 (1986) (internal quotation marks and citation omitted). To 26 determine whether an arbitration agreement exists, federal courts apply ordinary state contract law. 27 Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014). 28 Under California law, a valid contract requires the “mutual consent of the parties,” which 4 1 is “generally achieved through the process of offer and acceptance.” DeLeon v. Verizon Wireless, 2 LLC, 207 Cal. App. 4th 800, 813 (2012) (internal citations omitted).1 Whether such consent 3 occurred is determined under an objective standard based on the parties’ “outward manifestations 4 or expressions” and “the reasonable meaning of their words and acts, and not their unexpressed 5 intentions or understandings.” Id. “[O]rdinarily one who signs an instrument which on its face is 6 a contract is deemed to assent to all its terms.” Marin Storage & Trucking, Inc. v. Benco 7 Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1049 (2001), as modified (June 8, 2001). “The fundamental goal of contractual interpretation is to give effect to the mutual intention 8 United States District Court Northern District of California 9 of the parties.” Bank of the W. v. Superior Court, 2 Cal. 4th 1254, 1264 (1992); see CAL. CIV. 10 CODE § 1636. To determine the parties’ intent, California courts “look first to the language of the 11 contract in order to ascertain its plain meaning.” Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 12 59 Cal. 4th 277, 288 (2014) (internal quotations and citation omitted). If the language of the 13 contract is “clear and explicit, it governs.” Bank of the W., 2 Cal. 4th at 1264; see CAL. CIV. CODE 14 § 1638. “The whole of a contract is to be taken together, so as to give effect to every part, if 15 reasonably practicable, each clause helping to interpret the other.” CAL. CIV. CODE § 1641. 16 “Particular clauses of a contract are subordinate to its general intent.” Id. § 1650. If provisions of 17 a contract are contradictory, they must be “reconciled, if possible, by such an interpretation as will 18 give some effect to” both provisions, always “subordinate to the general intent and purpose of the 19 whole contract.” Id. § 1652. 20 I. THE LP PLAINTIFFS’ ARBITRATION AGREEMENT All parties agree that the LP Plaintiffs agreed to and signed the LP Subscription 21 22 Agreements. GSRV Mot. 13; GGG Mot. 9; Oppo. 5. Those agreements do not expressly include 23 arbitration provisions. Chelini Decl. at 5–12. The parties also agree that the LP Plaintiffs did not 24 personally sign the LP Partnership Agreements, which do contain arbitration provisions. GSRV 25 Mot. 9; GGG Mot. 10; Oppo. 5; Chelini Decl. at 32–58. The defendants nonetheless contend that 26 the LP Plaintiffs are bound by those agreements because, in their view, (1) the LP Subscription 27 1 28 The parties all apply California law to the formation, validity, enforceability, and interpretation of the agreements and alleged agreements. 5 1 Agreement incorporates the LP Partnership Agreement and (2) the Subscription Agreement 2 appointed Chelini as the LP Plaintiffs’ agent and required him to agree to the LP Partnership 3 Agreement, thereby binding the LP Plaintiffs to the LP Partnership Agreement. See GSRV Mot. 4 13. I agree that the LP Plaintiffs are bound by the LP Partnership Agreement. United States District Court Northern District of California 5 The LP Subscription Agreement provides that the LP Plaintiffs subscribed to the 6 investment “in accordance with the terms and conditions described herein and in the Limited 7 Partnership Agreement of GSVR-VTI, LP.” Chelini Decl. at 5. It further provides, “[t]he 8 undersigned hereby irrevocably appoints Eric Chelini, the managing member of [GSVR-VTI’s] 9 general partner, [GGG], acting individually, as the undersigned’s true and lawful representative 10 and attorney in fact in the undersigned’s name, place and stead, . . . to execute, acknowledge, 11 swear to and file, in the same and on behalf of the undersigned: (A) the Partnership Agreement, to 12 be entered into pursuant to this Subscription Agreement and any amendments to which the 13 undersigned is a signatory; (B) any subsequent amendments to any such amendments as provided 14 in the Partnership Agreement; . . . .” Id. at 14–15. The omitted portions of this provision give 15 Chelini other powers and duties to effectuate the transaction on the LP Plaintiffs’ behalf. See id. 16 As a result, the LP Plaintiffs expressly appointed Chelini as their agent for purposes of, at 17 least, agreeing to and executing the LP Partnership Agreement on their behalf. Tomerlin v. 18 Canadian Indem. Co., 61 Cal. 2d 638, 643 (1964) (“Actual authority arises as a consequence of 19 conduct of the principal which causes an agent reasonably to believe that the principal consents to 20 the agent's execution of an act on behalf of the principal.”); N.L.R.B. v. Dist. Council of Iron 21 Workers of the State of Cal. & Vicinity, 124 F.3d 1094, 1098 (9th Cir. 1997) (“Express actual 22 authority derives from an act specifically mentioned to be done in a written or oral 23 communication.”); 3 Am. Jur. 2d Agency § 15; Restatement (Third) Of Agency § 3.01 (“Actual 24 authority, as defined in § 2.01, is created by a principal’s manifestation to an agent that, as 25 reasonably understood by the agent, expresses the principal’s assent that the agent take action on 26 the principal’s behalf.”). Once an agency relationship is created, “an agent represents his principal 27 for all purposes within the scope of his actual or ostensible authority.” CAL. CIV. CODE § 2330. 28 This authority extends to entering arbitration agreements. Indep. Living Res. Ctr. San Francisco v. 6 1 Uber Techs., Inc., No. 18-CV-06503-RS, 2019 WL 3430656, at *3 (N.D. Cal. July 30, 2019) 2 (collecting California authorities). The declaration Chelini submitted with his motion states, “[t]he Partnership Agreement United States District Court Northern District of California 3 4 was entered into by and among GSRV-VTI Management, LLC, as its general partner, and the 5 limited partners, i.e., the investors whose LP Subscription Agreements had been accepted by the 6 General Partner. I executed this agreement on behalf of GSRV-VTI Management, LLC.” Chelini 7 Decl. ¶ 4. Accordingly, the LP Plaintiffs committed to being bound by the terms of the LP 8 Partnership Agreement when they signed the Subscription Agreement, the Subscription 9 Agreement explicitly contemplated that the LP Partnership Agreement was part and parcel of the 10 broader agreement to invest, the LP Plaintiffs explicitly appointed Chelini to execute the 11 agreement on their behalf, and Chelini did so. They are bound by it. 12 The LP Plaintiffs resist this conclusion by first arguing that the LP Partnership Agreement 13 is not signed by any LP Plaintiff. See Oppo. 6. But it need not be, as explained above. They also 14 argue that “[a]t no point has Mr. Chelini represented that he executed the [LP Partnership 15 Agreement] on any Plaintiff’s behalf.” Id. Yet Chelini expressly states that he did so on behalf of 16 GSRV-VTI Management, which the LP Plaintiffs committed themselves to being limited partners 17 in in the Subscription Agreement, so it is unclear why the LP Plaintiffs believe he did not. Next, 18 they say that the defendants have not put forward any copies of the LP Partnership Agreement 19 signed by Chelini on the LP Plaintiffs’ behalf. Id. 6–7. But the signed version of the LP 20 Partnership Agreement attached to Chelini’s declaration is on behalf of GSRV-VTI Management 21 and explicitly says it is being agreed to also by the limited partners, with a reference to a 22 “Schedule A” that lists those partners. See Chelini Decl. at 58. Although the defendants did not 23 include a copy of Schedule A with their motion, the LP Subscription Agreements provide that the 24 LP Plaintiffs are purchasing units to become limited partners, meaning the defendants have still 25 shown assent by a preponderance of the evidence. Id. at 5. It would have been ideal for them to 26 attach the schedule, but the documents they have attached are sufficient to meet their burden.2 27 2 28 The defendants attached Schedule A to their Reply. Dkt. No. 52-1 at 34. Because it could and should have been submitted with the motion and the failure deprived the plaintiffs of a fair 7 Taking a different tack, the LP Plaintiffs argue that, no matter what agency authority was United States District Court Northern District of California 1 2 given, the LP Partnership Agreement did not give Chelini authority to enter into the arbitration 3 agreements on the LP Plaintiffs’ behalf because they “had no reason to expect as much.” Oppo. 4 6–7. But the LP Subscription Agreement provided that the LP Plaintiffs would be bound by the 5 LP Partnership Agreement and that Chelini would execute it on their behalf. There was, 6 accordingly, an express grant of agency to Chelini to bind them to it. The LP Plaintiffs 7 conclusorily suggest that enforcing the clause to “unwittingly” bind them would be “an 8 unenforceable breach of fiduciary duty that goes against all principles of equity,” id. 7, but they 9 cite no authority for that view and, in any case, the express terms of the LP Subscription 10 Agreement gave the grant of authority to Chelini. And the plaintiffs make much of the fact that 11 the LP Partnership Agreement contemplates a different general partner (GSRV-VTI) than the LP 12 Subscription Agreements (GSRV-Management), id. 8, but the Complaint alleges that this 13 amendment occurred, so that is no reason to disbelieve the documents’ authenticity. Compl. ¶ 84.3 Finally, the plaintiffs argue that they cannot be bound by the arbitration provision because 14 15 they did not know about it, let alone sign it. Oppo. 7–8. But the case they rely on dealt with 16 situation in which someone was never given a fair opportunity to review the arbitration agreement 17 or put on notice they were agreeing. Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 566 (9th Cir. 18 2014) (“When Knutson purchased his vehicle from Toyota, he did not receive any documents 19 from Sirius XM, and he did not know that he was entering into a contractual relationship with 20 Sirius XM by using the service.”). Here, the LP Plaintiffs were sufficiently put on notice and 21 22 23 opportunity to respond, I strike it. Roe v. Doe, No. C 09-0682 PJH, 2009 WL 1883752, at *5 (N.D. Cal. June 30, 2009). 24 3 25 26 27 28 The plaintiffs also assert that the LP Partnership Agreement is dated after the LP Subscription Agreements were accepted, but that makes sense because it was those agreements that gave Chelini the power to then execute the LP Partnership Agreement. Cf. Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 4th 949, 967 (1993), as modified on denial of reh’g (Mar. 26, 1993) (“Several documents concerning the same subject and made as part of the same transaction will be construed together even if the documents were not executed contemporaneously.”). They imply it is possible the document was altered and that is why the date is later, but they have no evidence of that, such as an earlier version of the LP Partnership Agreement that differed. 8 1 given a fair opportunity by expressly agreeing in the LP Subscription Agreement that they would 2 be bound by the LP Partnership Agreement and giving Chelini the authority to then execute it on 3 their behalf. The situation might have been different if they lacked the opportunity to review the 4 LP Partnership Agreement before agreeing or if the version of the LP Partnership Agreement 5 available to them did not have the arbitration clause but the final, executed version did. See 6 Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal. App. 3d 987, 993 (1972). But here, the LP 7 Plaintiffs’ investment contract told them in its first provision that they were agreeing to terms in 8 another document, Chelini Decl. at 5, § 1(a), and gave Chelini authority to execute it. 9 II. United States District Court Northern District of California 10 THE LLC PLAINTIFFS’ ARBITRATION AGREEMENT All parties agree that the LLC Plaintiffs agreed to and signed the LLC Subscription 11 Agreements. GSRV Mot. 10; Oppo. 12. Again, those LLC Subscription Agreements do not 12 expressly include arbitration provisions. Chelini Decl. at 60–75. The defendants assert that the 13 LLC Plaintiffs also agreed to the LLC Operating Agreement. GSRV Mot. 10. That Agreement 14 does have an express arbitration clause. Chelini Decl. at 130. The LLC Plaintiffs dispute that 15 they ever agreed to the LLC Operating Agreement. Oppo. 12. For the reasons that follow, the 16 defendants have met their burden to show that the LLC Plaintiffs did agree to it. 17 A. The LLC Plaintiffs Agreed to the LLC Operating Agreement 18 Chelini states in a sworn declaration that the LLC Plaintiffs both executed the LLC 19 Operating Agreement. Chelini Decl. ¶ 7. He includes executed copies from both that include, 20 among other things, their signatures. See Chelini Decl. at 135 (Liu), 177 (Zhang). This direct 21 evidence illustrates that the LLC Plaintiffs agreed to the LLC Operating Agreement. See Marin, 22 89 Cal. App. 4th at 1049 (“[O]rdinarily one who signs an instrument which on its face is a contract 23 is deemed to assent to all its terms.”). 24 Circumstantial evidence supports that conclusion. The LLC Plaintiffs agree in their brief 25 that they did sign and agree to the LLC Subscription Agreements. Oppo. 12. Those Subscription 26 Agreements repeatedly reference the LLC Operating Agreement. Chelini Decl. at 80. More 27 importantly, the LLC Subscription Agreement provides that “[i]n addition to executing this 28 Agreement and paying the Total Subscription Payment for subscribed Membership Interests to the 9 1 Company as described herein, the Subscriber will also need to execute the Company’s Amended 2 and Restated Operating Agreement (‘Operating Agreement’), and deliver the executed Operating 3 Agreement to the Company in order to complete its subscription. Please review the Operating 4 Agreement in its entirety.” Id. at 81 (emphasis in original). In other words, the LLC Plaintiffs 5 admit that they contractually committed themselves to agreeing to the LLC Operating Agreement, 6 as the evidence shows they ultimately did. The LLC Plaintiffs’ counterarguments are unconvincing. They primarily rely on their own United States District Court Northern District of California 7 8 declarations, which state that they did not sign the forms. Oppo. 13; Dkt. Nos 49-1, 49-2. This 9 statement, however, is necessarily only that they do not recall signing the forms. If all that the 10 defendants had was a dueling declaration to the contrary, the situation might be different. But, as 11 explained above, their evidence is more substantial. Especially in the context of multiple lengthy, 12 dense, and technical forms being sent about a complicated investment process, it is reasonable that 13 someone might not recall each form specifically. The LLC Plaintiffs attempt to bolster this argument with a grab-bag of purported problems 14 15 with the copies of the LLC Operating Agreements that the defendants have produced. First, they 16 contend that they were sent several blank signature pages, so one of them might have been used 17 and appended to the LLC Operating Agreement. Oppo. 13–14. This speculation is overcome by 18 the sworn evidence to the contrary. Even if it were not, the pages themselves say “Operating 19 Agreement” on them; they are not blank signature pages. See Chelini Decl. at 135, 177. Relatedly, the LLC Plaintiffs speculate that the signatures are “not reliable.” Their 20 21 argument on Liu’s is that the signature is written in a different color ink than her printed name. 22 Their argument on Zhang’s is that it is “exactly identical” to the signature on her Subscription 23 Agreement. Oppo. 14 (emphasis in original). These oblique suggestions that fraud has been 24 committed are unpersuasive.4 There are many reasons why two different colors of ink may have 25 been used, including signing at a different time (with different pens in reach) than filling out the 26 printed information, an assistant or other person filling out the printed information before bringing 27 In a footnote, the LLC Plaintiffs say they “are not accusing these Defendants of forgery.” Oppo. 14 n.5. 10 4 28 1 for a signature from the plaintiff, wanting to differentiate them to show it is more authentic, or any 2 number of other intentional or coincidental reasons. Without more, these bare accusations do not 3 show that the signature is false. And as a factual matter, the LLC Plaintiffs are wrong that 4 Zhang’s signature is “exactly the same.” A brief examination by the naked eye shows below they 5 are similar only to the extent any signatures are, but they are not copies. 6 Chelini Decl. at 135, 177. Among other things, the two marks in the top left curve at different 7 angles, the horizontal line in the right half is bisected by a vertical line in one but not touching it in 8 the other, the space between various marks varies, and there are many other small differences. 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The LLC Plaintiffs also suggest that the signature pages are a different size than the remainder of the document, Oppo. 14, which appears true, but they both state they are for the “Operating Agreement,” so the suggestion that they are mixed-and-matched from other places is unconvincing. And they point out that the pages are not dated. Id. Again true enough, but the plaintiffs have not justified that, in these circumstances, the lack of a date shows they did not agree. None of these arguments, nor all of them together, show that the defendants failed to meet their burden. In a different vein, the LLC Plaintiffs argue that Chelini’s declaration is unreliable because it does not lay out a chain of custody for the documents. Oppo. 14–15. Chelini’s authentication is appropriate. He states that he executed those agreements on behalf of GSRV-VTI and that the copies attached are the true and correct versions of the executed agreement. See Chelini Decl. ¶ 7; Fed. R. Evid. 901(a), (b)(1). B. There is No Clause that Supersedes the Arbitration Provision The LLC Plaintiffs’ other broad argument is that the LLC Subscription Agreement has a forum-selection clause that “supersedes” the arbitration provision of the LLC Operating 11 1 Agreement. Oppo 16–17. The clause they rely on follows a choice-of-law clause selecting 2 California. Chelini Decl. at 71. It provides, “[a]ny litigation arising under this Agreement shall be 3 prosecuted exclusively in the state or federal courts residing in San Francisco, California and each 4 of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in 5 any such action or proceeding and waives any objection to venue laid therein or for lack of 6 personal jurisdiction.” Id. The LLC plaintiffs overread this provision. All that it says is that any litigation under the United States District Court Northern District of California 7 8 agreement must occur in courts in San Francisco. The clause does not state or imply that the clear 9 arbitration provision of the LLC Operating Agreement is void. It does not state or imply that the 10 parties must litigate instead of arbitrate. This interpretation, which is compelled by the 11 document’s plain text, also ensures that all of the contractual documents work together 12 harmoniously. See Myers, 13 Cal. App. 4th at 967 (“Several documents concerning the same 13 subject and made as part of the same transaction will be construed together even if the documents 14 were not executed contemporaneously.”); Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 975 15 (9th Cir. 2010) (“The whole of a contract is to be taken together, so as to give effect to every part, 16 if reasonably practicable, each clause helping to interpret the other.” (internal quotation marks, 17 alteration, and citation omitted)). 18 III. UNCONSCIONABILITY 19 The plaintiffs contend that the arbitration clauses are “invalid due to procedural 20 unconscionability.” Oppo. 21. They see the following issues: the arbitration clause of the LLC 21 Operating Agreement is at page 27 of a 30-page document, it was not highlighted, the contract was 22 only provided in English even though the plaintiffs’ first language is Chinese, other documents 23 were provided in Chinese, the LP Partnership Agreement was entered into after the LP 24 Subscription Agreements leaving them without choice, and the commitment of authority was 25 irrevocable. Id. 21–22. I am cognizant of the possible language barriers and the opportunities to 26 take advantage of foreign investors navigating the EB-5 process. But, under California law, a 27 contract is only invalid on unconscionability grounds when it is both procedurally and 28 substantively unconscionable. Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 910, 353 12 1 P.3d 741, 748 (2015); Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006). 2 Because the plaintiffs argue only the former exists, they cannot invalidate the contract on this 3 basis. In an errata filed five days after their brief and two days before the reply briefs were due, United States District Court Northern District of California 4 5 the plaintiffs sought to add a paragraph (that they argue was omitted) to their argument on 6 interpreting the LLC Subscription Agreement. Dkt. No. 50. The errata argues that the forum- 7 selection clause of the LLC Subscription Agreement renders the LLC Operating Agreement’s 8 arbitration clause substantively unconscionable for lack of mutuality because they will be 9 compelled to arbitration while the defendants can use a judicial forum if they bring claims. Id. 10 Then, in a footnote to that paragraph they suggest that applying the LP Partnership Agreement’s 11 arbitration clause would “likewise create a substantively unconscionable result.” Id. 12 To start, the plaintiffs cannot fundamentally alter their argument under the guise an errata 13 about a different topic filed days away from when the Reply would be due—especially, particular 14 to the LP Plaintiffs, in a footnote. But even if I were to consider this argument, the plaintiffs have 15 failed to show substantive unconscionability. Their argument about the LLC Operating 16 Agreement makes no sense: both clauses apply to all parties equally. The forum-selection clause 17 simply selects the venue for when litigation between the parties does occur; it does not give either 18 an advantage. The LLC arbitration provision likewise applies to claims brought by any party, not 19 just the plaintiffs. The argument on the LP Partnership Agreement is thinner still. The footnote 20 says that the LP Partnership Agreement “likewise” is invalid; that is, invalid for the same reasons 21 just described. But the clause at issue in the LLC Subscription Agreement is not in any document 22 the LP Plaintiffs signed. The plaintiffs also suggest that, because arbitration is more expensive 23 than litigation, the defendants have an unconscionable advantage, but their argument would render 24 all arbitration substantively unconscionable due to expense (they point to nothing special about the 25 costs here), and arbitration agreements are not per se unconscionable.5 26 27 28 5 Because the plaintiffs have not shown that the provision is at all substantively unconscionable, this is not a case in which placing procedural and substantive unconscionability on a “sliding scale” changes the analysis. See Nagrampa, 469 F.3d at 1281. 13 1 IV. Both the LP and LLC Plaintiffs argue that the claims in their Complaint do not “arise from 2 3 the terms of the” LP Partnership Agreement and LLC Operating Agreement, respectively. Oppo. 4 23–24. In other words, they contend that, even if they agreed to the LLC Operating Agreement, 5 its arbitration clause does not cover the current dispute. Id. Though parties may agree to arbitrate disputes so long as their agreement is consistent with 6 United States District Court Northern District of California DELEGATION OF ARBITRABILITY 7 the law, “gateway issues of arbitrability presumptively are reserved for the court.” Momot v. 8 Mastro, 652 F.3d 982, 987 (9th Cir. 2011). These gateway questions typically include “whether 9 the parties have a valid arbitration agreement or are bound by a given arbitration clause, and 10 whether an arbitration clause in a concededly binding contract applies to a given controversy.” Id. 11 Even though judicial resolution, not arbitration, is the presumptive forum for disputes about 12 arbitrability, “parties may agree to delegate them to the arbitrator.” Id. As a result, “[c]ourts 13 should not assume that the parties agreed to arbitrate arbitrability unless there is clear and 14 unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 15 944 (1995). If arbitrability is clearly and unmistakably delegated to the arbitrator, a court must 16 enforce that delegation “in the absence of some other generally applicable contract defense, such 17 as fraud, duress, or unconscionability.” Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1209 (9th 18 Cir. 2016). Here, there is no explicit provision delegating arbitrability to the arbitrator. Instead, the 19 20 defendants rely on the Ninth Circuit’s holding that, when both parties are sophisticated, there is a 21 clear and unmistakable delegation of arbitrability “when the parties have incorporated by reference 22 the rules of the” arbitration association if those rules provide that arbitrators should resolve 23 arbitrability disputes. Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981, 985 (9th 24 Cir. 2017), as amended (Aug. 28, 2017); Brennan v. Opus Bank, 796 F.3d 1125, 1131 (9th Cir. 25 2015). 26 Both agreements here fall under this rule. The LLC Operating Agreement states that 27 arbitration shall be conducted “pursuant to the rules then in effect of the American Arbitration 28 Association [(“AAA”)] (or at any other place or under any other form of arbitration mutually 14 1 acceptable to the parties so involved), with venue in San Francisco, California.” Chelini Decl. at 2 130. The LP Partnership Agreement provision that states arbitration be occur “in accordance with 3 the rules of the Judicial Arbitration and Mediation Service (“JAMS”) applying the laws of 4 California.” Id. at 57. The Plaintiffs counter that are not sophisticated and were unaware of AAA, JAMS, or their United States District Court Northern District of California 5 6 rules.6 Oppo. 24–25. Though at least one court has applied the rule when one party was 7 unsophisticated, see Caviani v. Mentor Graphics Corp., No. 19-CV-01645-EMC, 2019 WL 8 4470820, at *4 (N.D. Cal. Sept. 18, 2019), there is no need to determine whether or when the rule 9 applies to unsophisticated parties because, for present purposes, the plaintiffs are sufficiently 10 sophisticated. The plaintiffs were putting more than half-a-million dollars into a complicated 11 investment that required navigating both an investor visa process and a foreign investment 12 transaction. I am mindful that the plaintiffs carried out these transactions with a language barrier, 13 and in many cases that would be quite significant. But here, they affirmatively and purposefully 14 aimed their actions at a complex investment in another country, had sufficient wealth to facilitate 15 the substantial investment here, and either retained or had the capacity to retain counsel to fully 16 understand the transactions. Accordingly, the parties’ gateway dispute about whether the claims here are arbitrable 17 18 belongs with the arbitrator. 19 V. THE DEFENDANTS THAT CAN COMPEL ARBITRATION 20 Although all defendants move to compel arbitration (or join others’ motions), the plaintiffs 21 argue that their claims against some of the defendants do not belong in arbitration because they did 22 not sign the arbitration agreements. In particular, they contend that the GGG Defendants and VTI 23 are not signatories and that Chelini is not a signatory in his personal capacity. Under California law, “a nonsignatory defendant may invoke an arbitration clause to 24 25 compel a signatory plaintiff to arbitrate its claims when the causes of action against the 26 nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract 27 6 28 The plaintiffs do not dispute that the AAA and JAMS rules delegate issues of the scope of the arbitration clause to the arbitrator. 15 1 obligations.” Boucher v. All. Title Co., 127 Cal. App. 4th 262, 271 (2005); accord Franklin v. 2 Cmty. Reg'l Med. Ctr., No. 19-17570, 2021 WL 2024516, at *3 (9th Cir. May 21, 2021). This 3 doctrine comes from equitable estoppel: “By relying on contract terms in a claim against a 4 nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from 5 repudiating the arbitration clause contained in that agreement.” Boucher, 127 Cal. App. 4th at 6 271. And under substantive federal arbitration law, “a litigant who is not a party to an arbitration 7 agreement may invoke arbitration under the FAA if the relevant state contract law allows the 8 litigant to enforce the agreement.” Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128 (9th Cir. 9 2013); see Franklin, 2021 WL 2024516, at *6–*7 (compelling claims to arbitration in this basis). United States District Court Northern District of California 10 Here, the plaintiffs’ claims are “intimately founded in and intertwined with” the 11 contractual agreement. The first claim is for fraudulent inducement into the investment. Compl. 12 ¶¶ 176–94. The second, third, fourth, fifth, sixth, and seventh are for breach of fiduciary duties (or 13 aiding and abetting) that were allegedly owed as a result of the investment. Id. ¶¶ 195–247. The 14 eighth is for constructive fraud from failing to disclose material facts related to the investment. Id. 15 ¶¶ 248–50. The ninth is for fraudulent concealment along the same lines. Id. 251–55. The tenth 16 is for conversion, which depends on wrongful taking of the investment funds. Id. ¶¶ 256–63. The 17 eleventh and twelfth are state law claims premised on the alleged wrongful behavior the 18 defendants took carrying out the investment. Id. ¶¶ 264–84. The thirteenth and fourteenth are for 19 failure to disclose information the plaintiffs allege they are entitled to as a result of their 20 investment. Id. ¶¶ 285–93. 21 The plaintiffs respond that their claims do not “arise[] under” the LP Partnership 22 Agreement or LLC Operating Agreement because they do not assert claims for breach of them and 23 they are mentioned only five times in the complaint. Oppo. 20. That argument misunderstands 24 the inquiry. The doctrine does not apply solely when the claims are for breach of the contract at 25 issue. Boucher, 127 Cal. App. 4th at 272. And a party cannot get around equitable estoppel with 26 artful pleading. The question is whether the plaintiff relies on the contract such that her claim is 27 “intimately founded in and intertwined with” its obligations. Here, the plaintiffs would have no 28 claims against the nonsignatories without the agreement; those claims “are [not] fully viable 16 1 without reference to” the overall investment contract. Goldman v. KPMG, LLP, 173 Cal. App. 4th 2 209, 230 (2009). As shown above, all claims stem from the contractual relationship. The 3 plaintiffs cannot “make use of” that contractual agreement “and then attempt to avoid the duty to 4 arbitrate” that is part of it. Boucher, 127 Cal. App. 4th at 272; see Myers, 13 Cal. App. 4th at 967 5 (holding that the various documents must be treated as one contract).7 CONCLUSION 6 The motions to compel arbitration are GRANTED. All claims against all defendants are United States District Court Northern District of California 7 8 compelled to arbitration. 9 U.S.C. § 4. This matter will be STAYED pending the outcome of 9 arbitration. 9 U.S.C. § 3. The parties shall provide status updates every six months. If the 10 arbitrator determines that any claims are not arbitrable, the parties shall file a notice within 14 11 days so stating and requesting a status conference. The parties shall file a notice within 14 days of 12 the final disposition of the arbitration requesting that the stay be lifted or the case dismissed. IT IS SO ORDERED. 13 14 Dated: May 31, 2021 15 16 William H. Orrick United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 7 The plaintiffs also allege the nonsignatory defendants are alter egos of the signatories, and the nonsignatory defendants attempt to compel arbitration on this alternate basis. Because arbitration is compelled based on equitable estoppel, there is no need to address the dispute on this issue. 17

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