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This case was last updated from Los Angeles County Superior Courts on 05/23/2019 at 08:37:01 (UTC).

WILLIAM WEST VS ACCESS CONTROL RELATED ENTERPRISES LLC ET AL

Case Summary

On 11/28/2016 WILLIAM WEST filed a Contract - Business lawsuit against ACCESS CONTROL RELATED ENTERPRISES LLC. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judge overseeing this case is DALILA CORRAL LYONS. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****2062

  • Filing Date:

    11/28/2016

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Contract - Business

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Stanley Mosk Courthouse

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judge

DALILA CORRAL LYONS

 

Party Details

Plaintiff and Petitioner

WEST WILLIAM

Defendants and Respondents

GRILLO JOSEPH

LEHR SETH

CHEFITZ ROBERT

LLR EQUITY PARTNERS IV. LP

CASE GREG

ACCESS CONTROL RELATED ENTERPRISES LLC

STIENES DAVID

LLR EQUITY PARTNERS PARALLEL IV LP

Attorney/Law Firm Details

Plaintiff and Petitioner Attorneys

BIRD MARELLA BOXER WOLPERT NESSIM

RHOW EKWAN E.

Defendant Attorneys

MILLS JASON S.

JENSEN REBECCA L.

 

Court Documents

Minute Order

3/19/2018: Minute Order

PLAINTIFF WILLIAM WEST'S SECOND STATUS REPORT

3/22/2018: PLAINTIFF WILLIAM WEST'S SECOND STATUS REPORT

NOTICE OF RULING REGARDING STATUS CONFERENCE

4/2/2018: NOTICE OF RULING REGARDING STATUS CONFERENCE

Minute Order

9/28/2018: Minute Order

Status Report

4/29/2019: Status Report

Notice

5/20/2019: Notice

PROOF OF SERVICE OF SUMMONS

12/30/2016: PROOF OF SERVICE OF SUMMONS

DECLARATION OF PARKE HESS IN SUPPORT OF DEFENDANTS' NOTICE OF MOTION AND MOTION TO DISMISS OR STAY ACTION

2/14/2017: DECLARATION OF PARKE HESS IN SUPPORT OF DEFENDANTS' NOTICE OF MOTION AND MOTION TO DISMISS OR STAY ACTION

NOTICE OF CONTINUANCE OF DEFENDANTS? MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

2/17/2017: NOTICE OF CONTINUANCE OF DEFENDANTS? MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

NOTICE RE: CONTINUANCE OF HEARING

2/22/2017: NOTICE RE: CONTINUANCE OF HEARING

NOTICE RE: CONTINUANCE OF HEARING

2/22/2017: NOTICE RE: CONTINUANCE OF HEARING

DECLARATION OF WILLIAM WEST IN SUPPORT OF OPPOSITION TO DEFENDANTS' MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

3/9/2017: DECLARATION OF WILLIAM WEST IN SUPPORT OF OPPOSITION TO DEFENDANTS' MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

DEFENDANTS' REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

3/17/2017: DEFENDANTS' REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS OR STAY ACTION FOR FORUM NON CONVENIENS

Minute Order

3/22/2017: Minute Order

Minute Order

3/27/2017: Minute Order

NOTICE OF ENTRY OF SIGNED ORDER GRANTING DEFENDANTS' MOTION TO STAY ACTION FOR FORUM NON CONVENIENS

5/9/2017: NOTICE OF ENTRY OF SIGNED ORDER GRANTING DEFENDANTS' MOTION TO STAY ACTION FOR FORUM NON CONVENIENS

Minute Order

9/25/2017: Minute Order

37 More Documents Available

 

Docket Entries

  • 05/20/2019
  • Notice ( OF MINUTE ORDER RE NON.APPEARANCE CASE REVIEW); Filed by William West (Plaintiff)

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  • 05/01/2019
  • at 3:00 PM in Department 20, Dalila Corral Lyons, Presiding; Non-Appearance Case Review (of Plaintiff's Status Report of the case filed in the Delaware Superior Court) - Not Held - Advanced and Continued - by Court

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  • 05/01/2019
  • Minute Order ( (NON-APPEARANCE CASE REVIEW OF PLAINTIFF'S STATUS REPORT OF TH...)); Filed by Clerk

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  • 05/01/2019
  • Certificate of Mailing for (Minute Order (NON-APPEARANCE CASE REVIEW OF PLAINTIFF'S STATUS REPORT OF TH...) of 05/01/2019); Filed by Clerk

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  • 04/29/2019
  • Status Report; Filed by William West (Plaintiff)

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  • 09/28/2018
  • at 1:45 PM in Department 20; Court Order (Court Order; Court makes order) -

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  • 09/28/2018
  • Minute Order

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  • 09/28/2018
  • Minute order entered: 2018-09-28 00:00:00; Filed by Clerk

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  • 09/25/2018
  • PLAINTIFF WILLIAM WESTS THIRD STATUS REPORT

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  • 04/02/2018
  • Notice of Ruling; Filed by Plaintiff/Petitioner

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87 More Docket Entries
  • 12/30/2016
  • PROOF OF SERVICE OF SUMMONS

    Read MoreRead Less
  • 12/30/2016
  • PROOF OF SERVICE OF SUMMONS

    Read MoreRead Less
  • 12/30/2016
  • NOTICE OF ACKNOWLEDGEMENT OF RECEIPT - CIVIL

    Read MoreRead Less
  • 12/30/2016
  • Notice and Acknowledgment of Receipt

    Read MoreRead Less
  • 12/30/2016
  • Proof-Service/Summons

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  • 12/30/2016
  • NOTICE OF ACKNOWLEDGEMENT OF RECEIPT - CIVIL

    Read MoreRead Less
  • 11/28/2016
  • SUMMONS

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  • 11/28/2016
  • Complaint; Filed by William West (Plaintiff)

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  • 11/28/2016
  • COMPLAINT FOR: 1. BREACH OF FIDUCIARY DUTY ;ETC

    Read MoreRead Less
  • 05/02/2016
  • ORDER GRANTING DEFENDANTS' MOTION TO DSMISS OR STAY ACTION FOR INCONVENIENT FORUM

    Read MoreRead Less

Tentative Rulings

Case Number: BC642062    Hearing Date: April 30, 2021    Dept: 20

Tentative Ruling

Judge Kevin C. Brazile

Department 20


Hearing Date: Friday, April 30, 2021

Case Name: William West v. Access Control Related Enterprises, LLC et al.

Case No.: BC642062

Ex Parte: Application of Vishal H. Shah to Appear Pro Hac Vice on Behalf of Defendants

Moving Party: Defendants ACRE, et al.

Responding Party: *UNOPPOSED*

Notice: OK


Ruling: The Application is GRANTED. No appearance is necessary if the parties submit on the tentative.

Defendants to give notice.

Non-Appearance Case Review Re: Annual Payment of Pro Hac Vice Fee for Vishal H. Shah is scheduled for April 29, 2022 at 03:00 PM in Department 20 of Stanley Mosk courthouse.


BACKGROUND

In 2012, Plaintiff William West and Defendant Joseph Grillo co-founded Defendant Access Control Related Enterprises, LLC (“ACRE”). West served as ACRE’s CFO and COO.

On June 3, 2013, West, ACRE, Quicksilver Holdings, Inc., Mercury Security Products, LLC, and other parties signed the Contribution and Purchase Agreement (“CPA”). The parties concurrently executed several other agreements, including: a Second Amended and Restated Limited Liability Company Agreement; a Securityholders’ Agreement between ACRE and other securityholders; a Securities Purchase Agreement; an Equity Award Agreement; a Severance Agreement between West and ACRE; and a Non-Competition Agreement between West and ACRE. Some of these agreements have inconsistent choice of law and forum selection clauses. The Securityholders’ Agreement and Second Amended and Restated LLC Agreement both provide that disputes will be resolved in the U.S. District Court for the State of Delaware or the Chancery Courts of Delaware. The CPA, by contrast, provides that the parties “irrevocably and unconditionally submit[] . . . to the exclusive jurisdiction of any California State court, or Federal court of the United States of America, sitting within the State of California, and any appellate court from any thereof.”

On December 17, 2015, ACRE terminated West’s employment for cause following disputes over West’s pursuit of a transaction involving Mercury Security Products, LLC.

On November 28, 2016, West filed a Complaint in the Los Angeles Superior Court (the “California Action”). West asserted claims for wrongful termination, conversion, breach of fiduciary duty, and declaratory relief arising out of his termination for cause, alleging Defendants manufactured a false basis for termination.

On May 2, 2017, the Court (Judge Lyons then presiding) granted Defendants’ motion to stay this action on forum non conveniens grounds, finding the parties’ forum selection clause in the Securityholders’ Agreement controlling.

On August 25, 2017, West filed a Complaint in the United States District Court of the District of Delaware (the “Federal Action”).

On October 9, 2017, West voluntarily dismissed the Federal Action for lack of subject matter jurisdiction.

On November 14, 2017, West filed a Complaint in the New Castle County Superior Court of the State of Delaware (the “Delaware Action”). Judge Mary M. Johnston presided over the Delaware Action at all relevant times.

On October 4, 2019, Defendants moved for summary judgment in the Delaware action.

On December 6, 2019, Defendants moved to dismiss the Delaware action or alternatively to transfer to the Court of Chancery.

On January 3, 2020, Defendants moved to strike West’s demand for a jury trial in the Delaware Action based on the jury trial waiver clause in the Securityholders’ Agreement.

On January 20, 2020, Judge Johnston granted Defendants’ motion to transfer the action to the Court of Chancery. Judge Johnston found that granting the transfer motion effectively mooted the motion to strike West’s demand for a jury trial because the Court of Chancery does not conduct jury trials.

On June 18, 2020, West filed a motion in the California Action to lift the May 2017 stay.

On June 30, 2020, West moved to stay proceedings in the Delaware Action.

On July 29, 2020, the Court issued a detailed ruling granting West’s motion to lift the May 2017 stay, primarily on the ground that West would be deprived of his right to a jury trial under the California Constitution if forced to proceed to bench trial in the Court of Chancery, and therefore declining to enforce the forum selection clause in the Securityholders’ Agreement. At the hearing, ACRE indicated it would advise the Delaware court of the jury trial issue and determine how the Delaware court would address it. The Delaware court subsequently indicated it would not transfer the Delaware action to the Court of Chancery.

On April 28, 2021, Defendants ACRE, LLR Equity Partners IV, LLR Equity Partners Parallel IV, Seth Lehr, David Stienes, Greg Case, Robert Chefitz, and Joseph Grillo (“Defendants”) filed an Ex Parte Application for Vishal H. Shah to Appear Pro Hac Vice on their behalf. The Application is not opposed.

DISCUSSION

Applicable Law

California Rules of Court (“CRC”) Rule 9.40 governs pro hac vice appearances, and requires that an applicant submit a verified application setting forth: the applicant's residence and office address; the courts to which the applicant has been admitted to practice and the dates of admission; that the applicant is a member in good standing in those courts; that the applicant is not currently suspended or disbarred in any court; the title of court and cause in which the applicant has filed an application to appear as counsel pro hac vice in this state in the preceding two years, the date of each application, and whether or not it was granted; and the name, address, and telephone number of the active member of the State Bar of California who is attorney of record.  CRC Rule 9.40 also provides that notice of the hearing must be served upon all parties who have appeared in the action as well as the State Bar of California. CRC Rule 9.40(e) requires the applicant to pay a fixed fee to the State Bar—currently, $50.00.

Application to Facts

Here, the requirements of California Rules of Court, Rule 9.40 have been fully complied with and the Application should be granted. Based on the proof of service, Defendants served the Application on all other parties who have appeared in this action (i.e. Plaintiff West). Defendants have complied with Rule 9.40(e) requiring payment to the State Bar. (Park Decl., para. 6 (On April 28, 2021, “my office caused a copy of the Application and all supporting documents thereto along with the required $50.00 fee to be submitted to the California State Bar…”) Mr. Shah appears to be admitted to practice in three states (Alabama, Pennsylvania, and Illinois) and maintains good standing therein. (Shah Decl., para. 4-5.) The Application is supported by Julianne G. Park, counsel of record for Defendants and an active member of the State Bar of California. (Park Decl., para. 1.) Thus, the requirements of Rule 9.40 have been satisfied. The Application is unopposed. (See Park Decl., para. 5 (“On April 28, 2021, Counsel for Plaintiff informed me that they do not oppose Defendants’ application for pro hac vice admission of Vishal H. Shah.”))

Therefore, the Court GRANTS the Application to Appear Pro Hac Vice on behalf of Defendants. No appearance is necessary if the parties submit on the tentative.

Case Number: BC642062    Hearing Date: October 15, 2020    Dept: 20

Tentative Ruling

Judge David J. Cowan

Department 20


Hearing Date: Thursday, October 15, 2020

Case Name: William West v. Access Control Related Enterprises LLC et al.

Case No.: BC642062

Motion: Stay Action; Leave to File FAC

Moving Party: Defendants ACRE et al. (Stay); Plaintiff West (File FAC)

Responding Party: Plaintiff West (Stay); Defendants ACRE et al. (File FAC)

Notice: OK


Ruling: The Motion to Stay is DENIED.

The Motion for Leave to File FAC is GRANTED. West shall file the Proposed FAC within 10 days of this Order.

West to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LA Court Connect in view of the COVID-19 pandemic.


BACKGROUND

In 2012, Plaintiff William West and Defendant Joseph Grillo co-founded Defendant Access Control Related Enterprises, LLC (“ACRE”). West served as ACRE’s CFO and COO.

On June 3, 2013, West, ACRE, Quicksilver Holdings, Inc., Mercury Security Products, LLC, and other parties signed the Contribution and Purchase Agreement (“CPA”). The parties concurrently executed several other agreements, including: a Second Amended and Restated Limited Liability Company Agreement; a Securityholders’ Agreement between ACRE and other securityholders; a Securities Purchase Agreement; an Equity Award Agreement; a Severance Agreement between West and ACRE; and a Non-Competition Agreement between West and ACRE. Some of these agreements have inconsistent choice of law and forum selection clauses. The Securityholders’ Agreement and Second Amended and Restated LLC Agreement both provide that disputes will be resolved in the U.S. District Court for the State of Delaware or the Chancery Courts of Delaware. The CPA, by contrast, provides that the parties “irrevocably and unconditionally submit[] . . . to the exclusive jurisdiction of any California State court, or Federal court of the United States of America, sitting within the State of California, and any appellate court from any thereof.”

On December 17, 2015, ACRE terminated West’s employment for cause following disputes over West’s pursuit of a transaction involving Mercury Security Products, LLC.

On November 28, 2016, West filed a Complaint in the Los Angeles Superior Court (the “California Action”). West asserted claims for wrongful termination, conversion, breach of fiduciary duty, and declaratory relief arising out of his termination for cause, alleging Defendants manufactured a false basis for termination.

On May 2, 2017, the Court (Judge Lyons then presiding) granted Defendants’ motion to stay this action on forum non conveniens grounds, finding the parties’ forum selection clause in the Securityholders’ Agreement controlling.

On August 25, 2017, West filed a Complaint in the United States District Court of the District of Delaware (the “Federal Action”).

On October 9, 2017, West voluntarily dismissed the Federal Action for lack of subject matter jurisdiction.

On November 14, 2017, West filed a Complaint in the New Castle County Superior Court of the State of Delaware (the “Delaware Action”). Judge Mary M. Johnston presided over the Delaware Action at all relevant times.

On October 4, 2019, Defendants moved for summary judgment in the Delaware action.

On December 6, 2019, Defendants moved to dismiss the Delaware action or alternatively to transfer to the Court of Chancery.

On January 3, 2020, Defendants moved to strike West’s demand for a jury trial in the Delaware Action based on the jury trial waiver clause in the Securityholders’ Agreement.

On January 20, 2020, Judge Johnston granted Defendants’ motion to transfer the action to the Court of Chancery. Judge Johnston found that granting the transfer motion effectively mooted the motion to strike West’s demand for a jury trial because the Court of Chancery does not conduct jury trials.

On June 18, 2020, West filed a motion in the California Action to lift the May 2017 stay.

On June 30, 2020, West moved to stay proceedings in the Delaware Action.

On July 29, 2020, the Court issued a detailed ruling granting West’s motion to lift the May 2017 stay, primarily on the ground that West would be deprived of his right to a jury trial under the California Constitution if forced to proceed to bench trial in the Court of Chancery, and therefore declining to enforce the forum selection clause in the Securityholders’ Agreement. At the hearing, ACRE indicated it would advise the Delaware court of the jury trial issue and determine how the Delaware court would address it. The Delaware court subsequently indicated it would not transfer the Delaware action to the Court of Chancery.

On September 16, 2020, West filed a Motion for Leave to File a First Amended Complaint stating additional causes of action for breach of contract and tortious interference.

On September 18, 2020, ACRE filed a Motion to Stay the California action.

On September 29, 2020, West filed an Opposition to the Motion to Stay. ACRE filed an Opposition to the Motion for Leave.

On October 5, 2020, ACRE filed a Reply in support of staying this action. West filed a Reply in support of his Motion for Leave.

DISCUSSION

Defendants’ Motion to Stay Action

Following the Court’s July 29, 2020 Order lifting the stay in this action, Defendants seek to stay this action again. Defendants argue that (1) the Court should enforce the parties’ forum selection clause, (2) “the underlying rationale for the [Court’s] decision to lift the stay no longer exists (i.e. the transfer to the Delaware Court of Chancery)” (Motion, p. 9), and (3) the California action is not trial-ready. Defendants also argue they would be prejudiced by being forced to litigate the breach of fiduciary duty claim that West dropped in Delaware. The decision to impose or lift a stay is within “the sound discretion of the trial court.” (Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 215.)

As background, on May 2, 2017, Judge Lyons previously stayed the California action on the ground that enforcing the forum selection clause in the Securityholders’ Agreement requires that the action be litigated in Delaware. However, Judge Lyons did not have access to the forum selection clause in the CPA—which provides for California state and federal courts. On July 29, 2020, the Court concluded that enforcing the forum selection clause in the Securityholders’ Agreement “would result in a pre-dispute waiver of West’s ‘inviolate’ right to a jury trial” under Handoush v. Lease Finance Group LLC (2019) 41 Cal.App.5th 729, 739.

West argues the forum selection clause in the CPA undermines the conclusion that the parties agreed on Delaware as the forum for this dispute. However, West signed the CPA only in his capacity as CEO for ACRE, not in his individual capacity. West initiated the instant action in his individual capacity and none of the claims asserted in this action appear to depend on the CPA; West indicates the purpose of the CPA is “ACRE’s acquisition of Mercury,” and of the eight agreements West identifies, Mercury is only a party to the CPA. (See Opposition, p. 3.) The claims asserted do not relate to the purchase of Mercury—further demonstrating that the claims do not arise under the CPA. The Court is not persuaded by West’s nonsignatory enforcement arguments—which hinge not only on whether West is permitted to enforce the CPA, but whether he may enforce the CPA against nonsignatory non-ACRE Defendants on the ground that the CPA is connected sufficiently with other agreements signed by these Defendants. The link is too tenuous; neither Bugna v. Fike (2000) 80 Cal.App.4th 229 nor Lu v. Dryclean U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490 authorize a nonsignatory to enforce an agreement against another nonsignatory on the basis that the resisting nonsignatory signed a connected agreement. The Court is unaware of any cases involving that sort of fact pattern.

Further, West fails to explain why he did not raise the CPA in 2017 when Judge Lyons originally imposed the stay on the basis of the Securityholders’ Agreement forum selection clause, nor does West explain why he did not raise the CPA in his California or Delaware Complaints despite identifying several other agreements at issue. (See Reply, p. 5.) Instead, West identified several other agreements, all of which contained Delaware forum selection clauses or no forum selection clause. (Opposition, p. 3.) It is not clear that West should now, after years of litigation in Delaware without raising this point, be allowed to rely on the CPA to force the action to continue in California. The Court therefore declines to deny the Motion on the ground that the CPA forum clause is enforceable.

The “modern trend is to enforce mandatory forum selection clauses unless they are unfair or unreasonable.” (Berg v. MTC Electronics Technologies (1998) 61 Cal.App.4th 349, 358.) “The factors that apply generally to a forum non conveniens motion do not control in a case involving a mandatory forum selection clause,” and the trial court should assess whether enforcement would contravene a public policy or otherwise be unreasonable. (Id.; Cal-State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, 1680 “a court will refuse to enforce a forum-selection clause if this will bring about a result contrary to the public policy of the forum”); see Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 495-97 (“No satisfying reason of public policy has been suggested why enforcement should be denied.”)) “Mere inconvenience or additional expense is not the test of unreasonableness since it may be assumed that the plaintiff received under the contract consideration for these things.” (Smith, supra, 17 Cal.3d at 496.) Thus, the issue is whether enforcement of the forum selection clause in the Securityholders’ Agreement would be “unfair” vis-à-vis California public policy.  

The Court concludes enforcement here would be unfair because Delaware is not a viable alternative forum to California for West’s breach of fiduciary duty claim. It is undisputed West would be unable to obtain a jury trial in Delaware on his fiduciary duty claim and would be able to obtain a jury trial here.[1] The Courts of Chancery are the sole forum in Delaware for fiduciary duty claims and do not conduct jury trials. The Court recognizes that the Delaware action is now not being transferred to the Court of Chancery; however, this is at least in part because West decided not to pursue the fiduciary duty claim in Delaware at all, not because West would be able to obtain a jury trial on that claim. It appears that West stopped pursuing that claim because Delaware was not a viable forum. As the Court noted in its previous ruling, California has a “fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers.” (Handoush, supra, 41 Cal.App.5th at 735.) For the same reasons, the Court concludes here again that enforcing the Securityholders’ Agreement forum selection clause would be unfair because it would violate fundamental California public policy by violating West’s right to a jury trial on his breach of fiduciary duty claim.

It is not clear that West’s omission of the breach of fiduciary duty claim in his amended Delaware complaint constituted a dismissal with prejudice or abandonment, either of which may warrant re-imposing a stay. No authority was presented indicating that omission of a claim in an amended complaint, without more, constitutes dismissal with prejudice. Instead, ACRE has now offered a Notice of Voluntary Dismissal of this claim submitted by West on July 24, 2018 “without prejudice.” (Park Decl., Ex. A.) The Court therefore concludes West dismissed without prejudice the fiduciary duty claim—which would not necessarily affect West’s ability to continue to litigate that claim in California, whether under the FAC or the original Complaint.

The Court also finds that the breach of fiduciary duty claim is, to some degree, intertwined with his employment claims—the parties’ dispute relates in part to corporate opportunities and ownership issues, not merely West’s employment. West’s termination as CFO and COO of ACRE was precipitated by disputes with LLR over a management buyout of Mercury and whether that buyout proposal should be submitted to the ACRE Board. (See Complaint, para. 10-15, 51-59, 63.) The fiduciary duty claim therefore does not appear to be peripheral to the employment termination claims litigated in Delaware. There is no purpose in forcing West to separately litigate his employment and fiduciary duty claims in two Delaware courts—one offering a bench trial and one a jury trial—rather than pursuing them to jury trial in a single California forum.

Analysis of forum non conveniens considerations further supports the conclusion that enforcing the forum selection clause would be unfair here. (But see Berg, supra, at 358 (“factors that apply generally to a forum non conveniens motion do not control in a case involving a mandatory forum selection clause.”)) It is undisputed that ACRE conducts its business primarily in California and has its principal place of business in California. While Wagner and Grillo are domiciled in Connecticut rather than California (Banks Decl., para. 6), Wagner’s work primarily took place in California (West Decl., para. 3) and Grillo also worked in California “several times a year.” (West Decl., para. 3.) West executed all relevant agreements in California and worked primarily in California at all relevant times. (West Decl., para. 7-14.)

While several of the companies at issue are registered in Delaware (Banks Decl., para. 6), it is undisputed that ACRE, Mercury, and Quicksilver (registered in California) conducted business primarily in California. The remaining corporate defendants, such as LLR, Prudential, and Egis, voluntarily entered into these agreements with companies registered in or primarily conducting business in California. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 446 (one’s “requisite forum contact” can include “‘deliberately’ . . . engag[ing] in significant activities with[in] a State [cite] or . . . creat[ing] ‘continuing obligations’ between [one]self and residents of the forum” state.”)) In sum, the parties at issue have significant connections with California either by virtue of primarily conducting business in California (ACRE, West, Wagner), being registered in California (Quicksilver), or “creat[ing] ‘continuing obligations’” with California residents by entering into agreements with West and Quicksilver (LLR, Prudential, Egis et al.) notwithstanding that some parties are registered in Delaware. Though the Court does not agree that Delaware has a merely “tangential” connection, as West argues, it appears that California has substantial connections and the injury (West’s termination) took place in California. Indeed, to the extent West was fired in connection with the buyout of Mercury, the Court notes again that Mercury is a California corporation.

Finally, Defendants argue this action is not trial ready, unlike the Delaware action. The Court recognizes that additional discovery may be required by virtue of the breach of fiduciary duty claim at issue here, which was dropped in Delaware. However, the fact that the Delaware action is now ready for jury trial in the Delaware Superior Court is partially due to West’s decision not to pursue the fiduciary duty claim in the Court of Chancery—which he was entitled to do, though he would have been unable to obtain a jury trial. The additional discovery required for a jury trial in California on West’s fiduciary duty claim does not necessarily impose a greater burden than ACRE would bear if West had separately litigated his claims in the Delaware Superior Court and Court of Chancery.

Similarly, the Court is not persuaded that ACRE would be prejudiced by the Delaware judge not continuing to decide West’s claims. Though the Delaware handled pre-trial matters, this is not particularly significant because the claims at issue in Delaware would be decided by a jury in any event, not the judge. Thus, any loss of knowledge or familiarity with this action from the Delaware judge’s involvement would be mitigated by the fact that a jury is deciding those claims whether in California or in Delaware. Further, the Court presumes that if the California action proceeds, West will dismiss the Delaware action—as he is currently seeking to do. For that reason the Court does not believe there is a noteworthy risk of conflicting rulings between this Court and the Delaware court on West’s claims.

Therefore, the Motion to Stay is DENIED. Enforcement of the Delaware forum selection clause would be “unfair” in depriving West of his right to a jury trial on his breach of fiduciary duty claim.[2] While the Delaware action will not continue in the Court of Chancery, there is no reason to think West would be permitted to pursue his fiduciary duty claim to jury trial in the Delaware Superior Court; that court’s ruling on the Motion to Dismiss indicates it will not hold a jury trial on the fiduciary duty claim, so the issue is not resolved. The fact that this case is not trial-ready is mitigated by the discovery already conducted in Delaware; any further discovery required for the fiduciary duty claim is not an undue or disproportionate burden on ACRE. There is little risk of conflicting rulings if this action proceeds in California.

Plaintiff’s Motion for Leave to File FAC

West’s operative Complaint filed November 28, 2016 states claims for breach of fiduciary duty, wrongful termination, conversion, and declaratory relief. Now, four years later, West seeks leave to amend the Complaint to state new claims for breach of contract and tortious interference and remove the conversion and declaratory relief claims. (Motion, p. 6:9-11.) West previously asserted breach of contract, breach of fiduciary duty, and tortious interference claims in the Delaware action (Shin Decl., Ex. 2) but effectively dismissed the fiduciary duty claim in that action in January 2019 when he filed an amended complaint omitting that claim. The amended complaint did not omit the breach of contract and tortious interference claims, and the parties apparently conducted at least some discovery on those claims in Delaware. West claims “[a]ny and all additional factual allegations in the proposed FAC derive from evidence obtained during discovery in Delaware.” (Shin Decl., para. 11.)

At the outset, the Court observes that ACRE does not oppose granting leave to state new breach of contract and tortious interference claims. ACRE’s opposition focuses exclusively on the breach of fiduciary duty claim and does not mention the other claims. ACRE does not claim that additional discovery would be required to adequately respond to West’s breach of contract and tortious interference claims. Therefore, the Motion is GRANTED.

Though ACRE’s opposition discusses at length why the Court should not grant leave to state a breach of fiduciary duty claim, ACRE does not address that the operative Complaint in this action already states a claim for breach of fiduciary duty. The Court cannot deny leave to state a claim that was already stated in the original Complaint. The arguments in the Opposition may be more appropriate on, e.g., a motion to strike the breach of fiduciary duty claim alleged in the Complaint, but ACRE’s arguments necessarily miss the mark on this motion.

ACRE “request the Court (i) to reopen discovery for the limited purpose of Defendants issuing written discovery and taking depositions to defend against West’s claim for breach of fiduciary duty; (ii) to require West to compensate Defendants for attorneys’ fees and costs related to the additional discovery and trial preparations required by West’s claim for breach of fiduciary duty; and (iii) to grant leave to Defendants to assert a counterclaim against West for breach of fiduciary duty within 45 days and to answer or otherwise respond to West’s First Amended Complaint.” (Opposition, p. 7.) The Court grants ACRE’s request to reopen discovery, but does not limit discovery to “the limited purpose of Defendants issuing written discovery and taking depositions to defend against West’s claim for breach of fiduciary duty.” West is entitled to pursue discovery to litigate a claim he was unable to properly pursue in Delaware. The Court is not persuaded that the parties have necessarily conducted full and adequate discovery in Delaware on a claim West dropped in January 2019; further discovery may be required for ACRE to defend, notwithstanding that West has acquired some evidence relevant to his claim during Delaware discovery. West and ACRE do not argue further discovery is required to litigate the breach of contract and tortious interference claims.

However, the Court cannot require West to compensate Defendants for the costs of additional discovery. (See Fuller v. Vista Del Arroyo Hotel (1941) 42 Cal. App. 2d 400, 404 (imposing on defendant “all the expenses of the delay” as a result of its request to amend.)). The Court previously concluded that West did not unduly delay in seeking to lift the stay on this action. (7/29/20 Ruling (finding West’s “delay in raising this issue was reasonable—West promptly raised the issue here and in the Delaware Superior Court once it became clear the case would proceed without jury trial if he did not act, and there is no reason to expect West to have foreseen this issue before ACRE sought to strike his jury demand.”)) West could not have moved to amend his Complaint until the stay was lifted. The stay was lifted on July 29, 2020; West filed his Motion for Leave less than two months later on September 16, 2020. This two-month delay is not inappropriate. Therefore, the Court finds West did not unduly delay in seeking to amend the Complaint, and so denies ACRE’s request that West be ordered to pay fees caused by his delay. But in any event, as regards his breach of fiduciary duty claim, West had no obligation to amend the Complaint because the Complaint already stated that claim.

The Court perceives no reason why ACRE would not be entitled to respond to the FAC or assert an analogous cross-claim. West does not argue ACRE should be barred from filing a cross-claim or answer to the FAC. The Court therefore sees no need to address the third request.

Magpali v. Farmer’s Group, Inc. (1996) 48 Cal.App.4th 471, relied upon by ACRE, is distinguishable here. In Magpali, the Court of Appeal found that “adding the new cause of action would have changed the tenor and complexity of the complaint from its original focus,” broadening the scope of the complaint. (Id. at 487.) The plaintiff “concede[d] . . . that addition of the new claim would have necessitated . . . a continuance to allow Farmers to depose new witnesses.” (Id. at 487-88.) Further, the plaintiff sought leave to amend “[o]n the eve of trial.” (Id. at 475.) But “[w]here the trial date is set, the jury is about to be impaneled, counsel, the parties, the trial court, and the witnesses have blocked the time, and the only way to avoid prejudice to the opposing party is to continue the trial date to allow further discovery, refusal of leave to amend cannot be an abuse of discretion.” (Id. at 488.)

This action is not “on the eve of trial”; no trial date is set and ACRE argued at length in its Motion to Stay that this action is not trial-ready even if the Court denies leave to amend. Further, the proposed amendments would not “change[] the tenor and complexity of the complaint” in the California action in a manner which would prejudice ACRE. The breach of fiduciary duty claim was already alleged, and the breach of contract and tortious interference claims were litigated in Delaware. The amendments to the Complaint bring it into conformity with the Delaware complaint, other than the preexisting fiduciary duty claim. Further, the fiduciary duty claim is part of the “gist” of the action as a whole; see ante at p. 5. Therefore, Magpali is inapposite.

P&D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332 and Fisher v. Larsen (1982) 138 Cal.App.3d 627 are also inapposite insofar as both cases involved unreasonable delay. (P&D at 1345 (“The court's ruling was based on unreasonable delay”); Fisher at 649 (finding trial court was “within its discretion” to deny leave to amend because there was a five-month “long delay in seeking the amendment” even after a motion for summary judgment was filed.)) As discussed, West did not unreasonably delay in seeking leave to amend less than two months after the stay was lifted, and West did not unreasonably delay in seeking to lift the stay even over two years after it was imposed.  

Therefore, the Motion for Leave is GRANTED.

CONCLUSION

The Motion to Stay is DENIED.

The Motion for Leave to File the FAC is GRANTED. West shall file the Proposed FAC within 10 days of this Order.

West to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LA Court Connect in view of the COVID-19 pandemic.


[1] Delaware also does not appear to provide for recovery of punitive damages for a breach of fiduciary duty claim—unlike California.

[2] The Court previously held, in lifting the stay, that West should not be deprived of his right to a jury trial on the fiduciary duty claim; the Court notes that a contrary ruling would defeat the point of lifting the stay in the first place, though this is not the basis for the Court’s decision. For the reasons set out in the Court’s previous ruling, the Court does not believe this ruling or the previous ruling are inconsistent with Judge Lyons’ ruling imposing a stay. The parties did not brief or anticipate the issues that would ensue in obtaining a jury trial in Delaware for West’s breach of fiduciary duty claim, and Judge Lyons was unaware of the CPA, which was not provided at that time, though it is unclear whether this would have changed the outcome.

Case Number: BC642062    Hearing Date: July 29, 2020    Dept: 20

Tentative Ruling

Judge David J. Cowan

Department 20


Hearing Date: Wednesday, July 29, 2020

Case Name: William West v. Access Control Related Enterprises LLC et al.

Case No.: BC642062

Motion: Lift Stay; Appear Pro Hac Vice

Moving Party: Plaintiff West (Lift Stay); Defendants’ Counsel Michael L. Black (Appear Pro Hac Vice)

Responding Party: Defendants ACRE et al. (Lift Stay); UNOPPOSED (Pro Hac Vice)

Notice: OK


Ruling: The Motion to Lift the May 2017 Stay is GRANTED.

The Application to Appear Pro Hac Vice of Michael L. Black on behalf of Defendants is GRANTED.

West to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LA Court Connect in view of the COVID-19 pandemic.


BACKGROUND

 

In 2012, Plaintiff William West and Defendant Joseph Grillo co-founded Defendant Access Control Related Enterprises, LLC (“ACRE”). West served as ACRE’s CFO and COO.

On June 3, 2013, West, ACRE, Quicksilver Holdings, Inc., Mercury Security Products, LLC, and other parties signed the Contribution and Purchase Agreement (“CPA”). The parties concurrently executed several other agreements, including: a Second Amended and Restated Limited Liability Company Agreement; a Securityholders’ Agreement between ACRE and other securityholders; a Securities Purchase Agreement; an Equity Award Agreement; a Severance Agreement between West and ACRE; and a Non-Competition Agreement between West and ACRE. Some of these agreements have inconsistent choice of law and forum selection clauses. The Securityholders’ Agreement and Second Amended and Restated LLC Agreement both provide that disputes will be resolved in the U.S. District Court for the State of Delaware or the Chancery Courts of Delaware. The CPA, by contrast, provides that the parties “irrevocably and unconditionally submit[] . . . to the exclusive jurisdiction of any California State court, or Federal court of the United States of America, sitting within the State of California, and any appellate court from any thereof.”

On December 17, 2015, ACRE terminated West’s employment for cause following disputes over West’s pursuit of a transaction involving Mercury Security Products, LLC.

On November 28, 2016, West filed a Complaint in the Los Angeles Superior Court (the “California Action”). West asserted claims for wrongful termination, conversion, breach of fiduciary duty, and declaratory relief arising out of his termination for cause, alleging Defendants manufactured a false basis for termination.

On May 2, 2017, the Court (Judge Lyons then presiding) granted Defendants’ motion to stay this action on forum non conveniens grounds, finding the parties’ forum selection clause in the Securityholders’ Agreement controlling.

On August 25, 2017, West filed a Complaint in the United States District Court of the District of Delaware (the “Federal Action”).

On October 9, 2017, West voluntarily dismissed the Federal Action for lack of subject matter jurisdiction.

On November 14, 2017, West filed a Complaint in the New Castle County Superior Court of the State of Delaware (the “Delaware Action”). Judge Mary M. Johnston presided over the Delaware Action at all relevant times.

On October 4, 2019, Defendants moved for summary judgment in the Delaware action.

On December 6, 2019, Defendants moved to dismiss the Delaware action or alternatively to transfer to the Court of Chancery.

On January 3, 2020, Defendants moved to strike West’s demand for a jury trial in the Delaware Action based on the jury trial waiver clause in the Securityholders’ Agreement.

On January 20, 2020, Judge Johnston granted Defendants’ motion to transfer the action to the Court of Chancery. Judge Johnston found that granting the transfer motion effectively mooted the motion to strike West’s demand for a jury trial because the Court of Chancery does not conduct jury trials.

On June 18, 2020, West filed a motion in the California Action to lift the May 2017 stay.

On June 30, 2020, West moved to stay proceedings in the Delaware Action.

On July 2, 2020, Michael L. Banks filed an Application to Appear Pro Hac Vice on behalf of ACRE and other Defendants.

On July 17, 2020, ACRE filed an Opposition to the motion to lift the stay.

On July 23, 2020, West filed a Reply.

On July 27, 2020, ACRE filed a Sur-Reply and West filed an Objection.

DISCUSSION

Application to Appear Pro Hac Vice

The Court briefly rules on Michael L. Banks’ unopposed Application to Appear Pro Hac Vice, which the Court took under submission without a hearing. CRC Rule 9.40 governs pro hac vice appearances and requires that an applicant submit a verified application setting forth: the applicant's residence and office address; the courts to which the applicant has been admitted to practice and the dates of admission; that the applicant is a member in good standing in those courts; that the applicant is not currently suspended or disbarred in any court; the title of court and cause in which the applicant has filed an application to appear as counsel pro hac vice in this state in the preceding two years, the date of each application, and whether or not it was granted; and the name, address, and telephone number of the active member of the State Bar of California who is attorney of record.  CRC Rule 9.40 also provides that notice of the hearing must be served upon all parties who have appeared in the action as well as the State Bar of California. CRC Rule 9.40 requires the applicant to pay a fixed fee to the State Bar.

The requirements of CRC Rule 9.40 have been fully complied with—the Application and Notice were served on Plaintiff’s counsel and Mr. Banks seeks to appear on behalf of all Defendants. The necessary fee has been paid. The Application is therefore GRANTED.

Applicable Law

The decision to impose or lift a stay is within “the sound discretion of the trial court.” (Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 215.) “If an action is stayed in favor of litigation in an alternative federal forum, and the federal forum commences to deprive a California plaintiff of a fair adjudicatory process, a California court has the power to lift the stay and proceed with litigation,” even though this poses the risk of conflicting rulings. (Berg v. MTC Electronics Technologies (1998) 61 Cal.App.4th 349, 356.) A “staying court retains jurisdiction over the parties and the cause.” (Hahn v. Diaz-Barba (2011) 194 Cal.App.4th 1177, 1192.)

“A mandatory forum selection clause . . . is generally given effect unless enforcement would be unreasonable or unfair.” (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147.) “The party opposing enforcement of a forum selection clause ordinarily ‘bears the ‘substantial’ burden of proving why it should not be enforced.’” (Id.) But “California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state's public policy.” (America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11 (AOL).) Thus, “when the claims at issue are based on unwaivable rights created by California statutes,” the “party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum ‘will not diminish in any way the substantive rights afforded . . . under California law.” (Verdugo, supra, 237 Cal.App.4th at 147 (citing Wimsatt v. Beverly Hills Weight (1995) 32 Cal.App.4th 1511, 1520-24); accord AOL, supra, 90 Cal.App.4th at 11 (party seeking enforcement of forum selection clause implicating un-waivable rights must “prove that enforcement of the forum selection clause would not result in a significant diminution of rights.”)) The burden shift ensures “a forum selection clause [cannot] be used to circumvent those unwaivable rights.” (Id. at 149.)

In Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, the Supreme Court addressed whether pre-dispute waivers of the right to jury trial are enforceable in California. (Id. at 951.) Article I, Section 16 of the California Constitution provides that “any waiver of the inviolate right to a jury determination must occur by the consent of the parties to the cause as provided by statute.” The relevant “statute implementing this constitutional provision is [CCP] section 631,” which provides that “a jury may be waived in civil cases only as provided in subdivision (d).” (Id.) Subdivision (f) (former subdivision (d)) provides six possible ways to waive the right to a jury, “including failure to appear at trial, failure to demand jury trial within a specified period after the case is set for trial, failure to pay required fees in advance or during trial, oral consent in open court, or written consent filed with the clerk or the court.” (Id.) These six means are exhaustive—the right to a jury cannot be waived except as defined by the Legislature in section 631. (Id. at 956 (“unless the Legislature prescribes a jury waiver method, we cannot enforce it.”))

The Supreme Court concluded that pre-dispute waivers are not authorized by Section 631, which “presupposes a pending action” and so “applies only once there is a pending action.” (Id. at 958.) The respondent argued Section 631 does not require “that the written consent must be prepared or executed at any particular time,” arguing a pre-dispute waiver could be executed and filed with the Court later under then-subdivision (d)(2). The Court rejected this argument and found that “the grammar of section 631, subdivision (d) strongly supports the inference that both the agreement to waive jury trial and the filing of any such agreement must occur subsequent to the commencement of the lawsuit.” (Id. at 959 (emphasis added).) The Court noted the consistent use of the term “party” across each manner of waiver in subdivision (d) and concluded “a person must be a party to a lawsuit in order to waive jury trial.” (Id.) The Court also noted differences between Section 631 and statutory schemes for “arbitration and reference agreements,” which have broader “temporal reach.” (Id.) The Court also observed that Section 631 is intended “to implement article I, section 16 . . . a constitutional provision intended to safeguard the right to jury trial,” which is “inviolate” under California law. (Id. at 961.)

In Handoush v. Lease Finance Group, LLC (2019) 41 Cal.App.5th 729, the First District found the trial court erred in enforcing a forum selection clause which included a pre-dispute jury waiver, relying on Verdugo and Grafton. The Handoush plaintiff’s claims were “not based on a statutory scheme,” unlike in Verdugo and AOL, but the demand for a jury trial implicated the “fundamental” and “inviolate” right to a jury trial under California law. (Id. at 736.) The Handoush plaintiff argued enforcing the forum selection clause to take the case to New York would “result in an impermissible predispute waiver of his right to a jury trial” because New York has no analogous prohibition on pre-dispute waivers. (Id. at 737.) Due to this discrepancy, the court concluded that “enforcement of the forum selection clause here has the potential to contravene a fundamental California policy of zealously guarding the inviolate right to a jury trial, which is unwaivable by predispute agreements.” (Id. at 739.) Thus, under Verdugo and AOL, the burden shifted to the defendant to show litigation in New York would “not diminish in any way [Handoush’s] substantive rights ... under California law.” (Id.)

The Handoush defendant argued that “the only issue decided [by the trial court] was enforcement of the forum selection clause” such that, having now enforced the forum selection clause, “the issue of whether to enforce the jury trial waiver should properly be decided by a New York court.” (Id.) The appellate court rejected this argument because enforcing the forum selection clause would “put the issue of enforceability of the jury trial waiver contained in the same agreement before a New York court” applying New York law “permit[ting] predispute jury trial waivers.” (Id.) Since California does not permit such waiver, “enforcing the forum selection clause has the potential to operate as a waiver of a right the Legislature and our high court have declared unwaivable.” (Id.) The court found “litigation in New York may diminish Handoush’s substantive right under California law” and that the defendant had “not met its burden to show otherwise.” Thus, the First District reversed the trial court on the grounds that enforcement of the forum selection clause would violate a “fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers.” (Id. at 735.)

 

Application to Facts

Here, Judge Lyons stayed the California action on the grounds that the forum selection clause in the Securityholders’ Agreement was enforceable and required the action be litigated in Delaware. Judge Lyons did not have access to the CPA, which was contemporaneously executed and contains a forum selection clause for California state and federal courts. The CPA and the Securityholders’ Agreement both contain pre-dispute jury trial waiver provisions; however, neither waiver has ever been formally enforced. West now argues the stay should be lifted because further proceedings in the Court of Chancery will deprive him of the right to a jury based on the Securityholders’ Agreement forum selection clause. West also notes ACRE’s attempt in the Delaware Action to strike the demand for a jury trial by invoking the jury waiver provision of the Securityholders’ Agreement—which would not be enforceable in California.

This case is analogous to Handoush, where enforcement of the forum selection clause would “result in an impermissible predispute waiver” of the right to a jury. Here, refusing to lift the stay on the grounds that the Securityholders’ Agreement forum selection clause is enforceable would result in a pre-dispute waiver of West’s “inviolate” right to a jury trial. But unlike in Handoush, the issue is not whether the foreign state (New York in Handoush and Delaware here) would enforce a pre-dispute jury trial waiver. The problem is that the Court of Chancery simply does not conduct jury trials (at least, non-advisory jury trials). Judge Johnston recognized this in holding ACRE’s motion to strike West’s jury demand was mooted by the transfer to the Court of Chancery. The forum selection clause in the Securityholders’ Agreement designates either the United States District Court for the District of Delaware or the Chancery Courts of the State of Delaware. West initiated an action in federal court but voluntarily dismissed that action in October 2017. Thus, continued enforcement of the forum selection clause in the Securityholders’ Agreement would prevent West from having a jury trial. The pre-dispute forum selection clause is effectively and impermissibly used as a pre-dispute waiver of jury trial. Judge Lyons found the forum selection clause in the Securityholders’ Agreement “controls” and did not violate public policy, but did not consider whether enforcing the forum selection clause would waive the right to jury trial.

“A mandatory forum selection clause . . . is generally given effect unless enforcement would be unreasonable or unfair.” (Verdugo, supra, 237 Cal.App.4th at 147.) But such clauses will not be enforced “if to do so would substantially diminish the rights of California residents in a way that violates our state's public policy.” (AOL, supra, 90 Cal.App.4th at 11.) Thus, “when the claims at issue are based on unwaivable rights created by California statutes,” the “party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum ‘will not diminish in any way the substantive rights afforded . . . under California law.” (Verdugo, supra, 237 Cal.App.4th at 147.) Under Handoush, the demand for a jury trial is sufficient to trigger burden-shifting because enforcing a forum selection clause may “operate as a waiver of a right the Legislature and our high court have declared unwaivable” if the destination forum does not provide for jury trial (Handoush, supra, 41 Cal.App.4th at 739.) Thus, the Court finds West’s demand for a jury trial shifts the burden to ACRE to “show enforcement would not diminish unwaivable California statutory rights.” (Verdugo, supra, 237 Cal.App.4th at 144.)

ACRE has not met this burden. It is undisputed that West would not receive a jury trial if his action proceeds in the Court of Chancery (Judge Johnston found as much in mooting ACRE’s motion to strike West’s jury demand). This would substantially “diminish” the un-waivable right to a jury trial that West would otherwise receive under California law. The parties dispute the significance of the CPA in this analysis—West argues it is the “genesis” of the other agreements while ACRE downplays its significance. Ultimately, the CPA is not the basis for lifting the stay[1]—the Court’s concern is whether the Securityholders’ Agreement forum selection clause is enforceable under Verdugo and Handoush, and therefore the issue is whether ACRE carried its burden to show the forum selection clause will not “diminish” rights. ACRE does not argue that a bench trial in the Court of Chancery would be consistent with West’s right to a jury trial—instead, ACRE argues the motion is improper on several grounds and argues the burden does not shift under Verdugo and Handoush. These arguments are rejected.

First, ACRE argues West’s motion is premature and contravenes Judge Lyons’ stay order. Judge Lyon’s order “stay[ed] the final action in its entirety until all appeals are exhausted or – if no appeal is filed – until a final judgment is entered or until a dismissal is filed in any case initiated in Delaware, involving all the same issues and parties, or until further order of this court. . . . Any party may file a motion to lift the stay in this case once the Delaware court or other court’s case involving the same issues and parties is finally adjudicated.” ACRE argues this motion is premature because there was no final adjudication in Delaware and Plaintiff did not appeal the stay order.

The Court rejects this argument for three reasons. First, Judge Lyons’ instructions to the parties on when to seek to lift the stay are not binding—the instructions only indicate Judge Lyons’ intent to lift the stay after final adjudication or “further order of this court.” The Court finds Plaintiff properly put this issue before the Court as soon as possible to avoid waiving his right to a jury trial by proceeding further in the Court of Chancery. There is no evidence Judge Lyons anticipated this issue in instructing the parties on when to seek to lift the stay—relevant circumstances have changed substantially over the last three years of litigation in Delaware courts. Second, the Order does not actually prohibit the parties from seeking to lift the stay until final adjudication in Delaware. It says the action is stayed “until further order of this Court” and indicates the parties “may” file a motion to lift following final adjudication. At most, this meant Judge Lyons would be inclined to deny as premature any motion before final adjudication—it does not state that such a motion would necessarily be premature or improper. Moreover, the Order clearly provides for further orders of the Court as needed. Third, a final determination of West’s claims in Delaware without a jury trial would obviously moot the issue here. West cannot logically be required to forgo his right to a jury before seeking to protect his right to a jury. This is not a reasonable reading of the Stay Order—this interpretation makes the Order dispositive on an issue Judge Lyons never considered. The Court therefore rejects the argument that West was required to conclude Delaware proceedings before seeking to protect his right to a jury trial.

Second, ACRE argues West’s motion to lift the stay is an improper and untimely motion for reconsideration of Judge Lyons’ May 2017 stay order and Judge Johnston’s January 2020 order to transfer the action to the Court of Chancery (the “Transfer Order”). This is not correct. First, West’s motion to lift does not seek reconsideration—it seeks to lift the stay in light of changed circumstances over the last three years. There is no argument that Judge Lyons erred on any issue before her in finding the forum selection clause enforceable. It was not clear in 2017 that enforcement of the forum selection clause would constitute waiver of the right to a jury trial and this issue was never before Judge Lyons. In deciding whether to lift the stay, the Court is not revisiting the merits of Judge Lyons’ order—the Court is determining whether the stay should continue insofar as it enforces a forum selection clause violative of public policy regarding the right to a jury, not regarding the public policy issues at play in 2017. Indeed, Judge Lyons found West did not assert claims based on “non-waivable statutory rights,” but if the jury trial issue had been raised, the law is quite clear that the demand for a jury implicates un-waivable rights. (Grafton, supra, 36 Cal.4th at 956.) Moreover, the CPA—which was executed concurrently with the Securityholders’ Agreement and provides for a California forum rather than a Delaware forum—was not before Judge Lyons. Though this is not a motion for reconsideration, such a motion (if possible to timely file) may have been warranted by the new facts regarding the Delaware Action and the CPA.

The Court is also not reconsidering Judge Johnston’s Transfer Order. There is again no suggestion that Judge Johnston erred on any issue of fact or law and West is not requesting the Court block the transfer to the Court of Chancery. As ACRE noted, West filed a motion on June 30, 2020 in the Delaware Superior Court to stay the matter pending there. West has thus asked the Delaware court, not this Court, to consider whether the action should proceed in Delaware. The only issue before this Court is whether Judge Johnston’s decision, regardless of the merits, violates California public policy by ordering transfer to a court that does not conduct jury trials. Judge Johnston did not consider this issue—the Transfer Order is relevant only insofar as it would now prevent a jury trial.

Third, ACRE argues the Court of Chancery is competent to determine the business law issues in this action. This point is undisputed—the Chancery Courts are on the cutting-edge of corporate law and undeniably well-equipped to address issues in this action. But the Chancery Courts do not conduct jury trials. Regardless of the competence of the Chancery Court, West has a fundamental right to a jury trial as a California resident—this is a matter of fair process under the California Constitution. West’s wrongful termination claim may be competently determined by a jury and he has a right to such determination. It goes without saying that an employer-defendant would generally prefer a bench trial while an employee-plaintiff would prefer a jury trial; but ultimately, the parties’ preferences and the competence of the Court of Chancery are irrelevant where the real issue is whether West would be deprived of his right to a jury trial.  

Fourth, ACRE argues Handoush and Grafton are not on point. ACRE argues Grafton is not applicable because it “involved the enforceability of a jury-trial waiver, while Judge Johnston’s decision focused on the enforceability of the forum selection clause.” Similarly, ACRE argues Handoush is not on point because it “involved a jury-trial waiver clause embedded within the forum selection clause,” while here only the forum selection clause is at issue—Judge Johnston declined to strike the demand for a jury trial. These attempted distinctions are unpersuasive.

Grafton confirmed that jury trial can only be waived by the means specified in CCP sec. 631(f) and West argues enforcement of the forum selection clause would effect an improper waiver under section 631 and Grafton. (See Grafton, supra, 36 Cal.4th at 956.) Handoush confirmed that enforcement of a forum selection clause may be improper where enforcement would effectively waive the right to jury trial. (Handoush, supra, 41 Cal.App.4th at 735.) In Handoush, enforcement of the forum selection clause would cause improper waiver because the New York courts would enforce the embedded jury trial waiver clause. Here, enforcement of the forum selection clause would cause improper waiver because the Court of Chancery does not provide for jury trials. Handoush is therefore directly on point. It is irrelevant whether Judge Johnston’s decision was based on the forum selection clause or the jury waiver. The effect of the Transfer Order is to waive West’s right to a jury trial based on a pre-dispute agreement, whether that agreement regards forum selection or the right to a jury directly. It is similarly irrelevant that these provisions are severable because both the forum selection clause and the jury waiver would be unenforceable under Handoush.

Instead, ACRE attempts to analogize this case to Drulias v. 1st Century Bancshares, Inc. (2018) 30 Cal.App.5th 696. Drulias is obviously not on point. The Drulias court held that the plaintiff’s claims were “not based on unwaivable rights” and declined to shift the burden of proof on enforceability of the forum selection clause. (Id. at 703.) Under Handoush, the demand for a jury trial alone is sufficient to shift the burden. (Handoush, supra, 41 Cal.App.4th at 739.) The Drulias court therefore does not apply the relevant standard. Further, the Drulias court did not consider the right to a jury trial at all, while West’s right to a jury trial is the entire crux of his motion to lift the stay. Drulias instead applied the internal affairs doctrine (Corp. Code sec. 2116) and held that the internal affairs doctrine “does not deprive a court of the discretion to decline to exercise its jurisdiction over an action involving the internal affairs of a foreign corporation where that action would be more appropriately and justly tried elsewhere.” (Id. at 706.) That internal affairs issue is entirely irrelevant and Drulias is not instructive here.

ACRE argues that West’s failure to raise this issue in 2017 waived West’s right to now argue the forum selection clause would impact his right to a jury trial. (San Mateo Union High Sch. Dist. v. Cty. of San Mateo (2013) 213 Cal.App.4th 418, 435 (“forfeiture is the failure to make the timely assertion of a right.”)) But the right to a jury cannot be waived except as specified in CCP sec. 631(f)—failure to raise the issue at the forum selection stage is not a basis for waiver under subdivision (f).[2] Moreover, even if that did constitute waiver, “[t]he court may, in its discretion upon just terms, allow a trial by jury although there may have been a waiver of a trial by jury.” (CCP sec. 631(g).) Additionally, because there was no indication West knew that his federal action would be dismissed, it was not clear from the language of the Securityholders’ Agreement forum selection clause that West would be forced to proceed without a jury trial in the Court of Chancery. As a result, the delay in raising this issue was reasonable—West promptly raised the issue here and in the Delaware Superior Court once it became clear the case would proceed without jury trial if he did not act, and there is no reason to expect West to have foreseen this issue before ACRE sought to strike his jury demand. The Court declines to find forfeiture of West’s inviolate right to a jury for mere failure to brief this issue previously.

ACRE further argues that it would be “illogical” to apply California law to determine the enforceability of the Securityholders’ Agreement where the Agreement contains a Delaware choice of law provision. (See Abry Partners V, L.P. v. F&W Acq. LLC (Del. Ch. 2006) 891 A.2d 1032, 1049.) But ACRE cites no authority that a choice of law provision requires California courts to enforce agreements violative of California’s public policies. Under Verdugo, the Court does not balance California’s policy interests against the interests of the forum state—California courts “will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state’s public policy.” (Verdugo, supra, 237 Cal.App.4th at 147.) The burden is on the party seeking to enforce the forum selection clause to show substantial compliance with California’s public policy and the Court does not need to assess the forum state’s competing policies. (Id.)

Moreover, choice of law provisions are not necessarily enforceable when in conflict with fundamental California policies—in Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2017) 8 Cal.App.5th 1, the appellate court concluded  a New York choice of law provision was unenforceable insofar as it “direct[ed] the application of New York law to determine the enforceability of [pre-dispute] jury waiver provisions” because California has a “paramount interest” in preserving its policies regarding waiver of the right to a jury trial. (Id. at 15.) The jury waiver rules “form part of a considered procedural scheme intended to create a balanced adversarial system and a fair system of public administration of justice.” (Id. (citing Grafton, supra, 36 Cal.4th at 964.)) Similarly here, the Delaware choice of law provision may not be enforceable insofar as it has the effect of impermissibly waiving the right to a jury trial.  

The Court finds ACRE has not met its burden under Verdugo. Enforcement of the forum selection clause—which was the basis for Judge Lyons’ forum non conveniens stay order—would substantially “diminish” West’s right to a jury trial. In effect, continued enforcement of the forum selection clause would operate as a pre-dispute jury trial waiver under Handoush.

The Court further finds that this is an appropriate time to lift the stay. West has not yet initiated proceedings in the Court of Chancery and has filed a motion to stay proceedings in the Delaware Action. Discovery already conducted in Delaware can still be used here and does not prevent the parties from proceeding in California. Similarly, that the other parties are largely non-Californian does not deprive West of his right to a jury trial as a California resident, and moreover California forum would not be inappropriate where ACRE conducted substantial business in California. (CCP sec. 631; Cal. Const. Art. I, sec. 16.)

For the foregoing reasons, the Motion is GRANTED.

CONCLUSION

 

The Motion to Lift the May 2017 Stay is GRANTED.

The Application to Appear Pro Hac Vice of Michael L. Black is GRANTED.

West to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LA Court Connect in view of the COVID-19 pandemic.


[1] It is not now relevant whether West signed the CPA in his individual capacity or solely as CFO. The CPA is not a primary basis for the Court’s decision to lift the stay.

[2] In its Sur-Reply, ACRE argues West waived his right to jury trial by “failing to timely pay the fee” for jury trial. (CCP sec. 631(f)(5).) However, the initial case management conference was continued when Judge Lyons imposed the stay and still has not been conducted. West’s fees are therefore timely paid. The Court further notes that this issue would not be dispositive in any event because the Court “may, in its discretion upon just terms, allow a trial by jury although there may have been a waiver.” (CCP sec. 631(g).) This argument is therefore rejected.

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