H.K. Cont'l Trade Co. v. Nat. Balance Pet Foods, Inc.

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Hong Kong Continental Trade Co. Limited v. Natural Balance Pet Foods, Inc.

No. LA CV22-00571 JAK (AFMx)

United States District Court, C.D. California

March 28, 2023

T Jackson

PRESENT: THE HONORABLE JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE

CIVIL MINUTES - GENERAL

Proceedings (IN CHAMBERS) ORDER RE PLAINTIFF'S MOTION TO REMAND (DKT 11) AND DEFENDANT'S MOTION TO COMPEL ARBITRATION (DKT. 14)

I. Introduction

On January 24, 2022, Hong Kong Continental Trade Co. Limited (“Plaintiff” or “HKTC”) filed this action against Natural Balance Pet Foods, Inc. (“Defendant” or “NBPF”) in the Los Angeles Superior Court. Dkt. 1-1. The Complaint advances the following causes of action: (1) breach of the implied covenant of good faith and fair dealing; (2) breach of fiduciary duty; (3) promissory estoppel; (4) fraud and deceit; (5) unfair business practices; and (5) unjust enrichment. On January 26, 2022, Defendant removed the action, before Plaintiff effected service.

On February 9, 2022, Plaintiff filed a Motion to Remand to State Court (the “Motion to Remand” (Dkt. 11)). On March 2, 2022, Defendant filed an opposition (the “Opposition to Remand” (Dkt. 15)). Plaintiff filed a reply (the “Reply in Support of Remand”) on March 16, 2022.

On February 15, 2022, Defendant filed a Motion to Compel Arbitration (the “Motion to Compel Arbitration” (Dkt. 14)). On March 8, 2022, Plaintiff filed an opposition to that motion (the “Opposition to Arbitration” (Dkt. 16)). Defendant filed a reply (the “Reply in Support of Arbitration” (Dkt. 21)) on March 22, 2022.

A hearing was held on the Motion to Remand and the Motion to Compel Arbitration (collectively, the “Motions”) on October 3, 2022, and the Motions were taken under submission. Dkt. 25. At the hearing, the parties were directed to submit simultaneous supplemental briefing regarding the following issues: (1) whether under California law, California law applies to the issues of arbitrability; (2) whether under California law, the arbitration provision at issue is unconscionable; and (3) if the provision is unconscionable, whether under California law, severing any unconscionable term would permit compelling arbitration. Id.

On October 14, 2022, Defendant filed its supplemental brief (“Defendant's Supplemental Brief” (Dkt. 28)) and a request for judicial notice (“Request for Judicial Notice” (Dkt. 29)). On the same day, Plaintiff filed its supplemental brief (“Plaintiff's Supplemental Brief” (Dkt. 30)). On March 2, 2023, Plaintiff was directed to submit any response to whether the determination of the validity of the arbitration agreement is to be delegated to an arbitrator. Dkt. 33. On March 9, 2023, Plaintiff filed a supplemental brief (“Plaintiff's Additional Supplemental Brief” (Dkt. 34)) on this issue.

II. Factual Background

A. The Parties

It is alleged that Plaintiff is a limited liability company whose principal place of business is in Hong Kong. Dkt. 1-1 ¶ 1. It is alleged that Plaintiff is a “reputable specialized pet food wholesale company with significant experience distributing well-known brands in Greater China.” Id. ¶ 2.

It is alleged that Defendant is a California corporation that is “an American pet food manufacturer which sells its products worldwide.” Id. ¶ 4.

B. The Allegations in the Complaint

The Complaint alleges that Defendant contacted Plaintiff in August 2019 to assume and sell its unsold pet food inventory. Id. ¶ 10. It is alleged that when Defendant did so, Defendant's former distributor for Hong Kong, Macau, and Mainland China had “experienced liquidity issues and failed to pay for produced orders” and Defendant faced the risk that the required use by date for its inventory would expire absent prompt sales. Id. ¶ 10. It is alleged that Plaintiff was successful in “handling this crisis,” and as a result, Defendant entered into a series of distributorship contracts with Plaintiff and then “signed a five-year exclusive distributorship agreement with HKCT” for the Hong Kong, Macau, and Mainland China territory on January 16, 2020 (“the Agreement”). Id. ¶¶ 11-12.

It is alleged that, on or about February 1, 2021, Defendant was acquired by Nexus Capital Management LP, which is a private equity firm. Id. ¶ 19. At the time of this acquisition, Defendant allegedly began making inquiries to other companies about taking over distribution of its products in the territory Plaintiff covered. Id. ¶ 21. It is alleged that Defendant then failed to provide the products it had agreed to Plaintiff, and that this caused Plaintiff to lose the ability to complete sales and obtain the associated revenues. Id. ¶ 23-35. It is alleged that Plaintiff is fully dependent on Defendant for its commercial viability because of a non-compete provision in their contract. Id. ¶¶ 41-43.

C. Chronology of Removal

As noted, on January 24, 2022, Plaintiff filed this action in the Los Angeles Superior Court. Dkt. 1-1. On that same day, the Superior Court issued the Summons. Declaration of Julie Ritchie (“Ritchie Decl.”), Dkt. 11-2 ¶ 4. Plaintiff's counsel declares that “[u]pon receipt, my office put the summons and complaint out for service to Defendant.” Id. ¶ 5. As also noted, Defendant removed the action on January 26, 2022. Dkt. 1. On January 28, 2022, Defendant was served with the summons and complaint. Ritchie Decl. ¶ 7.

D. The Arbitration Provision

The Agreement between the parties includes the following provision as to arbitration (“Arbitration Provision”):

Any dispute arising between the parties out of or in connection with this Agreement shall be finally resolved by arbitration in San Francisco, California pursuant to the International Arbitration Rules of the American Arbitration Association. The arbitration shall take place before a single arbitrator jointly selected by the parties. In the event the parties are not able to agree to a single arbitrator within thirty (30) days of the written demand of either party for arbitration, the arbitrator shall be appointed by the AAA upon application by either party.

Notwithstanding the foregoing, NBPF shall have the right to sue in any court of competent jurisdiction to collect from Distributor funds due and owing NBPF for Products sold and delivered to Distributor hereunder, and Distributor agrees that, in the event of any suit for collection brought by NBPF, Distributor shall not be entitled to raise as a defense thereto any set-off or counterclaim alleged by Distributor; rather, any set-off or counterclaim alleged by Distributor shall be subject to the arbitration provision of this paragraph 14.2. This paragraph 14.2 shall not be construed to prevent NBPF from seeking injunctive relief against Distributor from any judicial or administrative authority or competent jurisdiction to enjoin Distributor from breaching any provision of this Agreement pending the resolution of a dispute by arbitration.

Declaration of John Sturm (“Sturm Decl.”), Dkt. 14-2, Ex. 1 § 14.2. .

The Agreement also contains the following two provisions:

This Agreement shall be governed in all respects by the substantive laws of the State of New York, U.S.A. (without giving effect to the conflicts of law principles thereof). The United Nations Convention on Contracts for the International Sales of Goods shall not apply to this Agreement. Id. § 14.1.

The clauses of this Agreement shall be deemed separable and if any portion of the Agreement shall be held illegal, unenforceable or invalid for any reason, the remainder shall not thereby be invalidated but shall remain in full force and effect. Id. § 18.3.

III. Request for Judicial Notice

Fed. R. Evid. 201(b) provides that a court “may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” A court may take judicial notice of a wide range of matters, including public records, government documents, judicial opinions, municipal ordinances, newspaper and magazine articles, and the contents of websites. See, e.g., Makaeff v. Trump Univ., LLC, 715 F.3d 254, 259 n.2 (9th Cir. 2013); Tollis, Inc. v. County of San Diego, 505 F.3d 935, 938 n.1 (9th Cir. 2007); United States v. Chapel, 41 F.3d 1338, 1342 (9th Cir. 1994); Heidelberg USA, Inc. v. PM Lithographers, Inc., No. CV1702223ABAJWX, 2017 WL 7201872, at *2 (C.D. Cal. Oct. 19, 2017); United States, ex rel. Modglin v. DJO Glob. Inc., 114 F.Supp.3d 993, 1008 (C.D. Cal. 2015), aff'd sub nom. United States v. DJO Glob., Inc., 678 Fed.Appx. 594 (9th Cir. 2017).

Defendant requests judicial notice of the International Dispute Resolution Procedures of the American Arbitration Association, effective June 1, 2014, available at https://www.adr.org/sites/default/files/ICDRRules.pdf. Dkt. 29 at 2. A copy of these rules is attached to the Request for Judicial Notice. Dkt. 29, Ex. 1. Plaintiff has not opposed the Request for Judicial Notice.

The rules of the American Arbitration Association (“AAA”) are the proper subject of judicial notice because they can be readily be determined from a source whose accuracy cannot reasonably be disputed. See Torres v. Secure Commc'n Sys., Inc., No. SACV2000980JVSJDEX, 2020 WL 6162156, at *3 (C.D. Cal. July 25, 2020) (taking judicial notice of AAA rules); Chavarria v. Ralphs Grocer Co., 812 F.Supp.2d 1079, 1087 n.8 (C.D. Cal. 2011) (same). Therefore, the Request for Judicial Notice is GRANTED.

IV. Motion to Remand

1. Legal Standards

Under 28 U.S.C. § 1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants...