Goobich v. Excelligence Learning Corp.

482 F.Supp.3d 986

Joel GOOBICH, Plaintiff,

v.EXCELLIGENCE LEARNING CORPORATION, Defendant.

Case No. 5:19-cv-06771-EJD

United States District Court, N.D. California, San Jose Division.

Signed August 28, 2020

David Allen Randall, Hackler Daghighian Martino & Novak, William E. Thomson, Jr., Brooks Kushman P.C., Los Angeles, CA, Ehab Monsef Samuel, Dickstein Shapiro LLP, Irvine, CA, Lauren Candice Martin, Hackler Daghighian Martino and Novak, Sepehr Daghighian, Law Offices of Sepehr Daghighian, P.C., Beverly Hills, CA, for Plaintiff.

Jonathan Douglas Meer, Caitlyn Margaret Crisp, Jared Wright Speier, Seyfarth Shaw LLP, Los Angeles, CA, for Defendant.

ORDER DENYING MOTION OF PLAINTIFF JOEL GOOBICH FOR DEFAULT JUDGMENT OR, IN THE ALTERNATIVE, TO COMPEL ARBITRATION, AND FOR ATTORNEYS’ FEES

Re: Dkt. No. 29

EDWARD J. DAVILA, United States District Judge

Pursuant to Rule 55 of the Federal Rules of Civil Procedure, Plaintiff Joel Goobich ("Plaintiff") filed a motion for default judgment against Defendant Excelligence Learning Corporation ("Defendant"), or in the alternative, to compel arbitration. Dkt. No. 29 ("Motion"). The Court takes the matter under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons below, Plaintiff's motion is DENIED.

I. BACKGROUND

Plaintiff is a Texas resident and inventor of, among other things, proprietary paint formulas. Compl., Dkt. No. 1, ¶ 1. Defendant, formerly known as QTL Corporation, is a Delaware corporation with is primary place of business in Monterey, California. Id. at ¶ 2.

On December 1, 1998, Plaintiff and Defendant entered an employment agreement ("EA"), by which Plaintiff assigned to Defendant his rights, title, and interest in a limited set of his proprietary paint formulations in exchange for commissions on certain of Defendant's products for a period of twenty-five years. Id. at ¶¶ 13-15. The EA made Defendant the exclusive licensee of any proprietary paint formulas created by Plaintiff after December 1, 1998. Id. at ¶ 17. In order to verify the commissions owed to Plaintiff, the EA grants Plaintiff the right to examine Defendant's books and records within 15 days of his written request. Id. at ¶ 14. The EA also includes an arbitration clause, which states:

Any dispute arising out of this Agreement shall be resolved through binding arbitration pursuant to the rules of the American Arbitration Association in effect at the time the dispute is submitted to arbitration. The parties shall share the costs of such arbitration equally.

Declaration of Joel Goobich ("Goobich Decl."), Ex. A, Dkt. No. 31-1 at 8. The EA further states that it shall be governed by the laws of the United States and the State of California. Ibid.

Plaintiff alleges Defendant misrepresented, concealed, and failed to disclose material facts related to the amount of money owed to Plaintiff and, as a result, significantly underpaid Plaintiff. Goobich Decl., ¶¶ 21-32, Dkt. No. 31. Plaintiff further alleges that Defendant has used Plaintiff's proprietary formulas to create new formulations, which are substantively derived from and materially the same as Plaintiff's formulations. Id. at ¶ 33. Plaintiff alleges that these new formulations are within the scope of the EA and that Defendant is obligated to pay Plaintiff commissions on products utilizing the new formulations. Id. at ¶ 34.

On February 22, 2019, Plaintiff wrote to Defendant, requesting to inspect Defendant's books and records. Goobich Decl., Ex. B, Dkt. No. 31-2. After some initial back-and-forth, Defendant provided Plaintiff with a limited number of records. Goobich Decl., Ex. C, Dkt. No. 31-3. From these records, Plaintiff concluded that he had been underpaid by at least $100,000. Ex. D. On or by May 30, 2019, Defendant wired Plaintiff $27,874 for the undisputed amount of prior royalties that had not been paid. Goobich Decl., Exs. G–I, Dkt. Nos. 31-7–31-9. On June 18, 2019, Plaintiff notified Defendant that, according to his calculations, he was actually underpaid by over $150,000 and requested that Defendant provide certain identified documents so that Plaintiff could more accurately determine what commissions were improperly withheld or underreported. Declaration of David A. Randall ("Randall Decl."), Ex. J, Dkt. No. 32-1. Defendant told Plaintiff that it would examine the data Plaintiff provided and would respond by June 20, 2019, however, Defendant did not respond by that date. Opposition to Plaintiff's Motion for Default Judgement or, in the Alternative, to Compel Arbitration ("Opposition"), Ex. 4–5, 7; Dkt. No. 43-2.

After additional email communication between the parties, Plaintiff remained dissatisfied with Defendant's alleged failure to provide sufficient records or payment. On July 23, 2019, Plaintiff filed for a Request for Arbitration with the American Arbitration Association ("AAA") under the AAA Employment Arbitration Rules. Randall Decl. at ¶ 19.

Following the Request for Arbitration, Plaintiff's counsel and Defendant's counsel had "several telephone conversations" regarding arbitration procedures. Declaration of Jared W. Speier ("Speier Decl."), ¶ 9, Dkt. No. 43-1. Plaintiff maintained that Defendant was responsible for the cost of arbitration proceedings under the Employment Rules of the AAA, pursuant to which Plaintiff filed the Request for Arbitration. Id. Defendant believed that the Employment Rules of the AAA were inapplicable because the dispute involves Plaintiff's ownership of intellectual property, not his employment. Id. at ¶ 11. Defendant further explained that the EA expressly provides that the parties are to split the cost of arbitration equally. Id. at ¶ 9. Therefore, Defendant sought to arbitrate pursuant to the AAA Commercial Arbitration Rules, which it believed better reflected the nature of the dispute and the arbitration agreement. Opposition at 6-8.¹

The AAA conducted a preliminary administrative review and determined that the dispute should be administered in accordance with the Employment Rules. Compl., Ex. 9, Dkt. No. 1-9. The AAA acknowledged receipt of Plaintiff's portion of the filing fee ($300) and requested that Defendant pay its portion of the filing fee ($1,900) on or before August 8, 2019 in order to proceed with the arbitration. Id. On August 9, 2019, the AAA alerted the parties that it had not yet received Defendant's filing fee, and requested that the fee be paid by August 23, 2019. Compl., Ex. 10, Dkt. No. 1-10. On August 30, 2019, after not receiving the requested filing fee, the AAA administratively closed the file and refunded Plaintiff's filing fee. Compl., Ex. 11, Dkt. No. 1-11.

Following the AAA's dismissal of the case, on October 18, 2019, Plaintiff filed the present action against Defendant bringing claims for (1) Accounting; (2) Breach of Contract; (3) Breach of Implied Covenant of Good Faith and Fair Dealing; (4) Tortious Breach of Covenant of Good Faith and Fair Dealing; (5) Intentional Misrepresentation/Fraud; (6) Negligent Misrepresentation; (7) Misappropriation of Trade Secrets; (8) Misappropriation of Trade Secrets under the Federal Defendant Trade Secrets Act; (9) Unfair Competition; (10) Unjust Enrichment; and (11) Fraudulent Concealment.

Defendant filed its Answer (Dkt. No. 12) and soon thereafter, Plaintiff filed a Motion to Strike Defendant's Affirmative Defenses. Dkt. No. 16. On March 30, 2020, this Court granted Plaintiff's Motion to Strike with leave to amend. Dkt. No. 40.

On February 18, 2020, Plaintiff filed this Motion for Default Judgment or, in the Alternative, to Compel Arbitration, and for Attorney's Fees. Plaintiff argues that Defendant's failure to pay the arbitration filing fee is a material breach of contract punishable by terminating sanctions and an order for attorneys’ fees, pursuant to the recently enacted California Code of Civil Procedure ("CCP") § 1281.99(b)(2)(B). Defendant opposes the Motion, arguing that CCP § 1281.99 is not retroactive, is preempted by the Federal Arbitration Act ("FAA"), and is unconstitutional.

II. DISCUSSION

Plaintiff contends that he is entitled to terminating sanctions and attorneys’ fees pursuant to California Code of Civil Procedure ("CCP") §§ 1281.97 - 99 because Defendant failed to pay the arbitration filing fee, which constitutes a material breach of the parties’ arbitration agreement. Motion at 10-12. In the alternative, Plaintiff seeks to compel arbitration pursuant to CCP § 1281.97(b)(2), under which Defendant would be required to pay Plaintiff's reasonable attorneys’ fees and the costs of arbitration. Motion at 12-13. Plaintiff also seeks the attorneys’ fees and costs that he incurred as a result of Defendant's alleged breach of the arbitration provision under the same statute. Motion at 13-15.

CCP §§ 1281.97 - 99 (the "Statutes") state in relevant part

(a) In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration administrator, the drafting party to pay certain fees and costs before the arbitration can proceed, if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under Section 1281.2.

(b) If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may ...

(1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.

(2) Compel arbitration in which the drafting party shall pay reasonable attorney's fees and costs related to the arbitration.

[...]

(d) If the employee or consumer proceeds with an action in a court of appropriate jurisdiction, the court shall impose sanctions on the drafting party in accordance with Section 1281.99

Section 1281.99 states:

(a) The court shall impose a monetary sanction against a

...