Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_07-cv-04679/USCOURTS-cand-4_07-cv-04679-2/pdf.json

Parties Involved:
Andrew Corporation
Defendant
Newton Bui
Plaintiff
Eddy Dominguez
Plaintiff
Tan Nguyen
Plaintiff
Licino Valino
Plaintiff

Document Text:

United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

EDDY DOMINGUEZ, NEWTON BUI, TAN

NGUYEN and LICINO VALINO,

Plaintiffs,

v.

ANDREW CORPORATION,

Defendant.

 /

No. C 07-4679 CW

ORDER GRANTING

PLAINTIFFS’ MOTION FOR

LEAVE TO AMEND THE

COMPLAINT; DENYING

PLAINTIFFS’ MOTION FOR

A PRELIMINARY

INJUNCTION; DENYING

DEFENDANT’S MOTION TO

DISMISS; AND GRANTING

DEFENDANT’S ALTERNATIVE

MOTION TO COMPEL

ARBITRATION

Plaintiffs Eddy Dominguez, Newton Bui, Tan Nguyen and Licino

Valino move for leave to amend their complaint and for a

preliminary injunction ordering Defendant Andrew Corporation not to

violate the terms of the Stock Purchase Agreement between the

parties. Defendant opposes these motions and moves to dismiss the

complaint in favor of arbitration or, in the alternative, to compel

arbitration and stay these proceedings pending the arbitration

decision. The matter was heard on November 29, 2007. Having

considered oral argument and all of the papers submitted by the

parties, the Court grants Plaintiffs’ motion to amend the

complaint, denies Plaintiffs’ motion for a preliminary injunction,

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United States District Court

For the Northern District of California

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1

The facts in this section are based on the allegations in the

complaint, which are deemed to be true for the purposes of the

motion, and the Stock Purchase Agreement between the parties. The

Court may properly consider the contents of this agreement because

the complaint refers to it. See Branch v. Tunnell, 14 F.3d 449,

454 (9th Cir. 1994) (“[D]ocuments whose contents are alleged in a

complaint and whose authenticity no party questions, but which are

not physically attached to the pleading, may be considered in

ruling on a Rule 12(b)(6) motion to dismiss. Such consideration

does not convert the motion to dismiss into a motion for summary

judgment.”) (internal quotation marks omitted).

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denies Defendant’s motion to dismiss and grants Defendant’s

alternative motion to compel arbitration.

BACKGROUND1

Plaintiffs were formerly employees and the sole shareholders

of CellSite Industries, Inc. (CSI). On April 24, 2006, Defendant

acquired CSI by entering into a Stock Purchase Agreement (SPA) with

Plaintiffs. After the acquisition, Plaintiffs stayed on as

employees of Defendant. What had formerly been CSI became a

business unit known as ACMC. Defendant named Richard DeFelice as

the director of ACMC; he became Plaintiffs’ direct supervisor.

Section 2(g) of the SPA is an “earn-out” provision, whereby

CSI’s purchase price was made “subject to upward adjustment based

on [CSI’s] achievement of certain financial performance

objectives.” Lacey Dec. Ex. A § 2(g), at p. 9. For each of the

first three years following the execution of the SPA, if CSI

achieved specified minimum levels of revenue and operating income,

Plaintiffs would be entitled to an earn-out of between four and

five million dollars. The earn-out provision also contains the

following clause:

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The Parties acknowledge and agree that [Defendant] shall

have full control and discretion with respect to the

decisions related to [CSI], including, without

limitation, its operations, budgeting, marketing, and

business scope (collectively, the “Buyer Decisions”), and

no Buyer Decision nor its effect on [CSI] shall result in

any amendment or expectation of amendment by the Parties

with respect to any of the terms under this Section

2(g)(iv), and such acknowledgment and agreement

represents a material inducement to [Defendant] entering

into this Agreement.

Id. § 2(g)(iv), at p. 11. The SPA further contains an integration

clause providing, “No amendment of any provision of this Agreement

shall be valid unless the same shall be in writing and signed by

[Defendant and Plaintiffs].” Id. § 10(i), at p. 48.

In addition, the agreement contains an arbitration clause that

states, “[E]ach Party hereto agrees that [] arbitration . . . shall

be the sole and exclusive method for resolving any claim or dispute

[] arising out of or relating to the rights and obligations

acknowledged and agreed to in this Agreement . . . .” Id. § 10(o),

at p. 49. An exception exists, however, for “disputes or claims

for which injunctive relief is sought (which may be pursued in any

court of competent jurisdiction as specified below).” Id. The

immediately preceding section expounds on the type of injunction

that is contemplated by the exception. Entitled “Specific

Performance,” it states that:

[E]ach of the Parties agrees that the other Parties shall

be entitled to an injunction or injunctions to prevent

breaches of the provisions of this Agreement and to

enforce specifically this Agreement and the terms and

provisions hereof in any court of the United States or

any state thereof having jurisdiction over the Parties

and the matter, in addition to any other remedy to which

they may be entitled, at law or in equity.

Id. § 10(n), at p. 49.

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Notwithstanding the language in the earn-out provision vesting

in Defendant full control of operational decisions relating to CSI,

Plaintiffs allege that, while negotiating the terms of the SPA,

they reached an agreement pursuant to which Plaintiffs would

maintain some degree of control over certain of CSI’s business

decisions. Pursuant to this “Operating Agreement,” Defendant also

promised to devote “significant resources” to CSI, including by

providing adequate “headcount and capital equipment to ensure

[CSI’s] ability to continue to grow the business,” which in turn

would enable Plaintiffs to achieve the performance levels required

to obtain the earn-outs. Compl. §§ 18 & 22.

Plaintiffs allege that, even though the Operating Agreement

represented a mutual understanding between the parties, Defendant

refused to incorporate its terms in the SPA. They claim that the

“Operating Agreement was subsequently drafted by Andrew and

Plaintiffs, but was never implemented.” Compl. § 23. Defendant

denies entering into any binding agreement with Plaintiffs other

than the SPA. Plaintiffs point to a spreadsheet printout that

appears to set a budget for CSI’s operations, but it recites no

promises.

Plaintiffs claim that Defendant did not adhere to the terms of

the Operating Agreement. Specifically, since executing the SPA,

Defendant has failed to invest the promised resources in CSI;

instead, it has placed “a series of obstacles and restraints” on

CSI’s operations. Id. This has made it difficult for Plaintiffs

to achieve their revenue and operating income targets, and has

placed in jeopardy their ability to obtain future earn-outs, even

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though they met their goals for year one.

Plaintiffs also claim that, during the negotiation of the SPA,

Defendant failed to reveal material information that would have

caused them to withdraw from negotiations. In particular, they

allege that Defendant was not honest about its plans to be acquired

by another company. If they had known about these plans,

Plaintiffs would not have gone through with the SPA out of concern

that, following the acquisition of Defendant, their unit could be

packaged and sold as a way of spinning-off unwanted assets.

Plaintiffs filed their complaint on September 11, 2007. It

alleges causes of action for: 1) Breach of the SPA; 2) Fraud and

intentional misrepresentation; 3) Negligent misrepresentation;

4) Intentional interference with prospective economic relations;

5) Negligent interference with prospective economic relations;

6) Breach of the implied covenant of good faith and fair dealing;

7) Unjust enrichment; and 8) Declaratory and injunctive relief. 

The complaint seeks money damages on the first six claims, the

imposition of a constructive trust on the seventh claim, and a

declaration and injunction on the eighth claim.

After Defendant filed its motion to dismiss in favor of

arbitration, Plaintiffs filed a motion for leave to amend the

complaint. They submitted a proposed amended complaint with this

motion. In the amended complaint, Plaintiffs eliminate their cause

of action for breach of the implied covenant of good faith and fair

dealing, and add two new claims: intentional infliction of

emotional distress and negligent infliction of emotional distress. 

They also seek a different remedy in connection with their breach

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2The Court notes that Plaintiffs’ prayer for relief does not

entirely correlate to their causes of action. For instance, the

Court assumes that Plaintiffs intend to seek a constructive trust

as a remedy for their sixth cause of action (unjust enrichment),

not their fifth cause of action (negligent interference with

prospective economic relations), as stated. The amended complaint

also does not state what remedy is sought on the ninth cause of

action.

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of contract claim; they now seek an injunction directing Defendant

to comply with the terms and conditions of the SPA.2 The factual

allegations in the amended complaint are identical to those in the

original complaint in all material respects, except that the

amended complaint adds new allegations in connection with the new

causes of action for infliction of emotional distress. These

allegations relate to threats and remarks that DeFelice allegedly

made to Plaintiff Dominguez.

DISCUSSION

I. Plaintiffs’ Motion for Leave to Amend

Rule 15(a) of the Federal Rules of Civil Procedure provides,

“A party may amend the party’s pleading once as a matter of course

at any time before a responsive pleading is served.” A motion to

dismiss is not a “responsive pleading” within the meaning of Rule

15. CRST Van Expedited, Inc. v. Werner Enterprises, Inc., 479 F.3d

1099, 1104 n.3 (9th Cir. 2007); Crum v. Circus Circus Enterprises,

231 F.3d 1129, 1130 n.3 (9th Cir. 2000).

Because Defendant filed a motion to dismiss, not an answer,

Plaintiffs may amend their complaint without leave of the Court. 

For the purpose of resolving Plaintiffs’ motion, however, the Court

grants them leave to file the proposed amended complaint. Insofar

as Defendant objects to Plaintiffs’ attempt to restyle the

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complaint so as to make this lawsuit fit more clearly within the

exception to the SPA’s mandatory arbitration clause, its concerns

should be obviated by the Court’s decision to compel arbitration.

II. Plaintiffs’ Motion for a Preliminary Injunction

To obtain a preliminary injunction, the moving party must

establish either: (1) a combination of probable success on the

merits and the possibility of irreparable harm, or (2) that serious

questions regarding the merits exist and the balance of hardships

tips sharply in the moving party’s favor. See Baby Tam & Co. v.

City of Las Vegas, 154 F.3d 1097, 1100 (9th Cir. 1998); Rodeo

Collection, Ltd. v. W. Seventh, 812 F.2d 1215, 1217 (9th Cir.

1987). The amended complaint requests an injunction on Plaintiffs’

claim that Defendant breached the SPA; on this motion, Plaintiffs

also seek an injunction forcing Defendant to comply with the

Operating Agreement. Because a preliminary injunction is only

available if injunctive relief is appropriate in the first

instance, the question before the Court is not whether Plaintiffs

are likely to succeed in proving that Defendant breached the SPA or

the Operating Agreement, but whether they are likely to succeed on

their claim for injunctive relief as a remedy for any such breach.

In their application for a preliminary injunction, Plaintiffs

state that the injunction sought would prohibit Defendant “from

taking any further action that would interfere with the agreed-upon

Operating Agreement [] including, but not limited to, terminating

the current employment of the Plaintiffs.” While this is phrased

as a negative injunction, Plaintiffs actually seek the remedy of

specific performance.

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An award of money damages is the usual remedy for a breach of

contract. Cal. Civ. Code § 3274. Specific performance, in

contrast, is an equitable remedy that is available only under

certain circumstances. To warrant specific performance, a contract

must be clear, definite, and certain. Magee v. Magee, 174 Cal.

276, 280 (1917). Courts will “only decree specific performance

where the subject-matter of the decree is capable of being embraced

in one order and is immediately enforceable. [They] will not

decree specific performance when the duty to be performed is a

continuous one, extending possibly over a long period of time and

which, in order that the performance may be made effectual, will

necessarily require constant personal supervision and the oversight

of it by the court.” Pac. Elec. Ry. Co. v. Campbell-Johnston, 153

Cal. 106, 117 (1908). Courts may not specifically enforce an

obligation to employ another in personal service. Cal. Civ. Code

§ 3390(2). Nor may they specifically enforce an agreement that is

not “sufficiently certain to make the precise act which is to be

done clearly ascertainable.” Cal. Civ. Code § 3390(5).

Specific performance of either the SPA or the Operating

Agreement, as they relate to the future operations of CSI, is

clearly not available under settled principles of law. In the

first place, except for the spreadsheet printout, the terms of the

Operating Agreement have not been disclosed to the Court with any

degree of precision. There would thus be no way to evaluate

Defendant’s compliance with a preliminary injunction enforcing

these terms, and the supplied spreadsheet contains no promises

capable of being enforced. More importantly, even if the details

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3Because, even assuming the truth of the facts alleged,

Plaintiffs are not entitled to injunctive relief, the Court need

not determine whether they will be irreparably harmed by

Defendant’s continued breach of the SPA or the Operating Agreement. 

Nonetheless, the Court notes that Plaintiffs allege no more than

monetary damage. This kind of harm is capable of being redressed

by an award of damages, and thus is not irreparable.

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of the Operating Agreement were completely known and sufficiently

clear, it still allegedly requires Defendant to make a long-term,

continuous investment of capital and human resources. A mandatory

injunction requiring such investment is not capable of immediate

enforcement and would require oversight over a long period of time. 

In addition, an injunction requiring Defendant to continue to

employ Plaintiffs is barred by statute.

For these reasons, specific performance is not a remedy

available to Plaintiffs, even if they are ultimately able to show

that Defendant breached the SPA or the Operating Agreement. 

Accordingly, their request for a preliminary injunction is denied.3

III. Defendant’s Motion to Compel Arbitration

Under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.,

written agreements that controversies between the parties shall be

settled by arbitration are valid, irrevocable, and enforceable. 9

U.S.C. § 2. A party aggrieved by the refusal of another to

arbitrate under a written arbitration agreement may petition the

district court which would, save for the arbitration agreement,

have jurisdiction over that action, for an order directing that

arbitration proceed as provided for in the agreement. 9 U.S.C. 

§ 4. If the court is satisfied “that the making of the arbitration

agreement or the failure to comply with the agreement is not in

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issue, the court shall make an order directing the parties to

proceed to arbitration in accordance with the terms of the

agreement.” Id. The FAA reflects a “liberal federal policy

favoring arbitration agreements.” Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem.

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

A district court must compel arbitration under the FAA if it

determines that: 1) there exists a valid agreement to arbitrate;

and 2) the dispute falls within its terms. Stern v. Cingular

Wireless Corp., 453 F. Supp. 2d 1138, 1143 (C.D. Cal. 2006) (citing

Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th

Cir. 2000)). Here, it is undisputed that the parties entered into

a valid agreement to arbitrate. Thus, the only question is whether

the dispute that is the subject of this lawsuit is covered by the

terms of that agreement.

The language of the SPA’s arbitration clause is broad; it

provides that arbitration “shall be the sole and exclusive method

for resolving any claim or dispute [] arising out of or relating to

the rights and obligations acknowledged and agreed to” in the

agreement. Lacey Dec. Ex. A § 10(o), at p. 49. Plaintiffs argue

that, other than their breach of contract claims, their causes of

action “do not relate to a breach of the SPA and/or Operating

Agreement, but rather relate to misrepresentations, interference,

and infliction of emotional distress.” Pl.’s Opp. at 4. It is

true that the allegations of infliction of emotional distress do

not appear to relate to or arise out of the SPA. However, the

remainder of Plaintiffs’ claims concern misrepresentations made in

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connection with Defendant’s purchase of CSI, which was consummated

by the SPA; and Defendant’s failure to invest the promised

resources in CSI, despite the SBA’s explicit disclaimer that all

operational decisions were left to Defendant. These claims are

“related to” the SPA; resolving any of them necessarily requires an

examination of the agreement and the negotiations leading up to it. 

Plaintiffs’ contention that the claims actually relate to the

Operating Agreement, and thus are separate and distinct from the

SPA, is untenable; the Operating Agreement cannot be considered

without also considering the SPA’s provision vesting authority over

operational decisions in Defendant.

The Court’s finding that the asserted claims either “arise

from” or are “related to” the SPA is not foreclosed by

Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458

(9th Cir. 1983), which Plaintiffs cite in support of their

position. In that case, the court found that an arbitration clause

covering disputes “arising under” the contract covered only claims

involving the interpretation and performance of the contract

itself. However, the court relied on the fact that the phrase

“arising under” is narrower in scope than the phrase “arising out

of or relating to,” the phrase that is used in the SPA here. Id.

at 1464. Whether or not the asserted claims “arise out of” the

SPA, they certainly “relate to” it, and thus fall within the scope

of the arbitration agreement.

Because Plaintiffs’ claims, other than those for infliction of

emotional distress, are related to the SPA, they are subject to

mandatory arbitration unless they fall within the exception for

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claims seeking injunctive relief. It is true that the amended

complaint seeks an injunction ordering Defendant to comply with the

terms of the SPA. However, as discussed above, such an injunction

is clearly unavailable to Plaintiffs. If they were permitted to

avoid arbitration simply by requesting injunctive relief in

connection with a breach of contract claim, notwithstanding the

clear unavailability of such relief, it would eviscerate the

arbitration clause. The Court therefore holds that, in order for a

cause of action to be subject to the arbitration carve-out, there

must be at least a colorable claim for injunctive relief. No such

claim exists here.

For these reasons, all of Plaintiffs’ claims, except those

alleging intentional and negligent infliction of emotional

distress, are referred to mandatory binding arbitration. However,

the Court declines to dismiss these claims. The FAA provides that:

If any suit or proceeding be brought in any of the courts

of the United States upon any issue referable to

arbitration under an agreement in writing for such

arbitration, the court in which such suit is pending,

upon being satisfied that the issue involved in such suit

or proceeding is referable to arbitration under such an

agreement, shall on application of one of the parties

stay the trial of the action until such arbitration has

been had in accordance with the terms of the

agreement . . . .

9 U.S.C. § 3. It is true that “[w]here an ‘arbitration clause is

broad enough to bar all of the plaintiff’s claims since it required

the plaintiff to submit all claims to arbitration,’ those claims

may be dismissed pursuant to Federal Rule of Civil Procedure

12(b)(6).” Johnston v. Beazer Homes Tex., L.P., 2007 WL 708555, at

*2 (N.D. Cal.) (quoting Sparling v. Hoffman Constr. Co., 864 F.2d

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635, 638 (9th Cir. 1988)). But dismissal is not mandatory and,

moreover, because Plaintiffs amended the complaint to add two

claims of infliction of emotional distress, the arbitration clause

is not “broad enough to bar all” of their claims.

Thus, the Court will stay Plaintiffs’ SPA-related claims

rather than dismiss them. The Court also severs Plaintiffs’ claims

for intentional and negligent infliction of emotional distress. 

These claims are referred to non-binding arbitration for settlement

purposes, to be considered in the same proceeding as Plaintiffs’

other claims. However, Defendant may also file a motion to dismiss

the emotional distress claims from this lawsuit.

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiffs’ motion

for leave to amend the complaint (Docket No. 26), DENIES

Plaintiffs’ motion for a preliminary injunction (Docket No. 15),

DENIES Defendant’s motion to dismiss and GRANTS Defendant’s

alternative motion to compel arbitration (Docket No. 21).

All proceedings related to the first through seventh causes of

action in the amended complaint are hereby referred to binding

arbitration. All proceedings in this Court concerning these causes

of action are stayed pending an arbitration decision. The parties

shall file a notice of such decision within ten days of its being

issued.

Plaintiffs’ eighth and ninth causes of action are severed from

their other claims. These causes of action are referred to nonbinding arbitration, to be heard along with Plaintiffs’ SPA-related

claims. However, Defendant may also file a motion to dismiss these

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causes of action by December 6, 2007, noticed for hearing on

January 10, 2008 at 2:00 p.m. Briefing on this motion shall

proceed according to the deadlines set forth in the Local Rules. 

The initial case management conference currently scheduled for

December 18, 2007 is continued to January 10, 2008, to take place

concurrently with the hearing on Defendant’s motion to dismiss.

IT IS SO ORDERED.

12/4/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

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