N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
DKS, INC ., Pla i ntiff-Appe lle e , v. C OR POR ATE B USINESS SOLUTIONS, INC ., De fe nda

n t-Appe l la

nt, a nd OLIVER SINTOB IN; T. J. ELISON, De fe nda

nts. No. 15-16589 D.C . No. 2:15-c v-00132-M C EDAD

M EM O R ANDUM *

Appe a l from

the Unite d

Sta t e s Distric t C ourt for the Ea ste rn Distric t of C a lifornia M orrison C . Engla

nd, Junior, Distric t Judge , Pre siding Argue d a nd subm itte d Oc tobe r 21, 2016 Sa n Fra n c isc o , C a lifornia 

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JAN 17 2017 M OLLY C. DW Y E R, CLERK U. S. CO URT O F APPEALS

* T his d isposition i s not a

ppropria te for public a t ion a nd i s not pre c e d e nt e xc e pt a s provide d by

Ninth C irc uit R

ule 36-3.

** The Honora

b le Ja m e s Ala

n Soto, Unite d Sta te s Distric t Judge for the Distric t of Ariz o na , sitting by de s igna tion.B e fore : HAW KINS a nd C ALLAHAN, C irc uit Judge s , a nd SOTO, ** Distric t Judge
. C orpora te B usine ss Solutions (C B S) a ppe a ls the distric t c ourt’ s orde r de ny ing a m otion to c om

pe l a rbitra tion. W e ha v e jurisdic tion unde r 9 U.S.C . § 16,
a nd we a ffirm
.

“ W e re vie w the de nia l of a m otion to c om

pe l a rbitra tion de novo. Unde rly i ng fa c tua l findings a re re v ie we d for c le a r e rror, while the inte rpre ta tion
a nd m e a ning of c ontra c t provisions a re re vie we d de novo.” N

guy e n v . Barne

s & N oble , Inc

. , 763 F.3d 1171, 1175 (9th C ir. 2014) (inte rna l quota tions a nd c ita tions
om i tte d). C B S prim a rily

a rgue s tha

t the distric t c ourt m i sa

pplie d the doc trine of

“ fraud in the inc e ption” to inva lida te the a gre e m e nt c onta i ning the a rbitra tion provision. W e disa gre e . In C a lifornia , a

c ontra c t is void— a nd a

ny a rbitra t ion provision the

re in is
une nforc e a

ble

— if the pa

rty re sisting a

rbitra t ion c a n

“ show tha

t the fra ud we nt to the i nc e ption or e xe c ution of the a g re e m e nt, so tha t the prom isor did not volunta rily a sse nt to a

ny pa rt of the purporte d c ontra c t of whic h the a rbitra tion
c la use is a pa rt.” Ric e v . De an W

itte r Re y n olds, Inc

. , 235 C a l . App. 3d 1016, 1023 (1991), ov e rrule d on anothe r ground by Rose nthal v . Gre at W . Fin. Se c s. C orp. , 14 C a l. 4th 394 (1996). Fra

ud in the inc e ption m a y

e xist e ve n if both pa

rtie s ha d

2“ a m

ple opportunity

to re a d the [c ontra c t] in [its] e ntire ty ,” be c a u s e the pa rty dra fting the te rm s a

nd c onditions of a

c ontra c t m a y

do so “ in suc h a

wa y a s not to
a pprise ” the othe r pa rty

of its inte ntions. Duic k

v . Toy ota Motor Sale

s, U.S.A., Inc

. , 198 C a l. App. 4th 1316, 1323 (2011). Assum ing tha

t the a lle ga tions in the

c om pla i nt a re true , a s we m

u st do a t this sta ge of the litiga

tion, “ a re a sona ble re a de r in [DKS, Inc .’ s (DKS)] position would not ha ve known tha

t [it] wa s signing up to be the ta rge t of” C B S’ s a lle ge d

sc he m e . Id. a t 1319. Tha

t a lle ge d sc he m e inc lude d but wa s not lim i te d to: funne ling funds from DKS to C B S; forging fina nc ia l doc um e nts to se c u re a dditiona l funding tha t
c ould be funne le d to DKS’ s proje c ts to pa y the hourly

bills run up by

C B S
e m ploy e e s; se c uring a dditiona l loa n s to pa y those hourly bills; de stroy ing DKS’ s
re la tionship with c lie n t s a nd c re ditors; a

n d fra udule ntly re pre se nting to DKS’ s pa y roll c o m pa ny tha t a C B S e m ploy e e ha d be e n hire d a s a n e xe c utive a nd subse q ue ntly re c e iving pa

y c he c ks for tha

t pha ntom position. Nothing in the boile rpla te c ontra c t signe d by the pa rtie s c ould ha

ve put DKS on re a sona

ble notic e tha t it wa s subje c ting itse lf to suc h a c t ivity ; the re fore , the c ontra c t wa s void a t its inc e ption. In sum , the c o m pla i nt c o nta ins ove r thirty pa ra gra p hs of spe c ific a c tions tha t C B S e m ploy e e s unde rtook to e nric h the ir busine ss a t DKS’ s e x pe nse . If true , the s e a c ts substa

ntia te DKS’ s c la im

tha t the re wa s ne ve r a

m e e ting of the m inds
3de spite both pa rtie s ha ving signe d the c ontra c t. 1 AFFIRM E D. 2

1 The spe c ific ity of the s e ple a dings m i tiga te s a ga inst C B S’ s c o nc e rns tha t this ruling c o uld ope n the door to a rtful ple a d ings by pla intiffs to a void a rbitra tion. Additiona lly , distric t c ourts re gula rly s c rutiniz e co m

p l ai nts t o e nsure a lle ga tions a re suffic i e ntly

pla usible to give rise to a re a sona b le infe re nc e tha t pla i ntiffs a re e ntitle d to re lie f, the re by pre ve nting p l a intiffs fr om m a k i ng ba re a lle ga tions of “ fra u d in the inc e ptio n” to e sc a

p e m otions to c om

pe l a rbitra tion. Se e , e .g. , Ashc roft v . Iqbal , 556 U.S. 662, 677–78 (2009).

2 Be c a use we find tha t the c o ntra c t wa s void a t its inc e ption, we ne e d n o t a ddre s s whe the r DKS’ s c la i m s fa ll within the a rbitra tion provision’ s sc ope . 4DK

S, Inc

. v . C

o r porate Busine ss Solutions, Inc

. , 15-16589

HAW KINS, Se nior C irc uit Judge , disse nting: I re spe c tfully disse nt from the d e c ision of m y c olle a gue s. Although I a gre e tha t C a lifornia ’ s c la im of “ fra ud in the inc e ption” is a

form of fra ud in the e xe c ution tha t
c ould re nde r a n a

rbitra tion a gre e m e nt une nforc e a ble , this c a s e doe s not pre se nt suc h
a c la im
. C a lifornia c ourts e xpla in tha t in a c a se of fra

ud in t he inc e ption “ the prom isor is d e c e iv ed as t o the ve ry na t u re of his a c t, a nd a c tua l ly doe s not know wha t he is signing, or doe s not inte nd t o e nte r into a c ontra c t a t a ll” suc h tha t m utua l a sse nt is la c king. Rose nthal v . Gre at W

. Fin. Se c . C

o r p. , 14 C a l. 4th 394, 415 (1996). A c la im
o f frau d in the inc e ption a rise s whe n “ without a

ny ne glige nc e on his pa

rt, a signe r
a tta c h e s his signa

ture t o a pa

pe r as s um ing it t o be a pa p e r of a d iffe re nt c ha

ra c te r.” Id. a t 420. Exa m

ple s of suc h c a se s inc lude a pla intiff who b e l ie ve d she wa s signing
a co n tra c t to loa

n m o ne y , but the c ontra c t in fa c t a uthoriz e d the d e fe nda

nt t o sel l pla i ntiff’ s stoc k, Ric e v . De an W itter Reynolds, Inc

. , 235 C a l. App. 3d 1016 (1991),

ov e rrule d in p art o n o t

he r g rounds by R ose n t

hal , 14 C a l. 4t h at 4 0 7 ; an d a pla intiff who be lie ve d s he w a s e nte ring a c ontra c t to ta ke a pe rson al it y eva lua tion, but the
c ontra c t inste a d provide d t ha t the pla intiff a gre e d to pa rtic ipa te in a n online m a rke ting



# F IL ED
JAN 17 2017 M OLLY C. DW Y E R, CLERK U. S. CO URT O F APPEALSc a m

pa ign “ pra nk,” Duic k v . Toy ota Motor S ale s, U.S.A., Inc

. , 198 C a l. App. 4th 1316, 1321 (2011). Fa r from a lle g ing fa c ts a nal o g o u s to the se C a lifornia c a se s, DKS’ s c om pla int
a lle ge s tha t (1) i t w a s frau dule ntly induc e d into t he C onsulting Agre e m e nt, a nd (2) C B S a nd its e m

ploy e e s a c te d tortiously in the ir pe rform a nc e of the a g re e m e nt. Although DKS a lle ge s tha t the e ntire c onsulting a rra nge m e n t wa s pa

rt of a fra udule nt
sc he m e , C a lifornia disti n g u i sh es c a se s involving a “ gra nd sc he m e ” of fra ud from
c a se s involving fraud in the inc e ption. Se e Rose nthal , 14 C a l. 4th a t 418–19. B e c a use DKS doe s not spe c i fic a lly a lle ge tha t the a rbitra tion provision itse lf wa s fra udule ntly induc e d, a l l c la im s fa lling wi t h i n i t s s c ope a re for the a rbitra t or. Se e Prima Paint C orp. v . Flood &

C onk lin Mfg. C

o. , 388 U.S. 395, 403–04 (1967). Nor a m I p e rsua d e d by

DKS’ s a lte rna tive a rgum e n t tha t t he c la im s a sse rte d in the c om pla i nt fa ll outside the a rbitra tion provision’ s sc ope . A lthough t he pa rtie s ha ve indicat ed t h at t

h e c la im s in the c om

pla int ha ve c ha

nge d i n som e re s pe c ts ove r the
c ourse of litiga

tion, a t le a st som e of the c la i m s in the c om pla int be fore us a

re subje c t to a rbitra t ion. For e xa m

ple , the c om

pla i nt a s se rts a c la im

of profe ssiona l ne glige nc e pre d ic a te d on a ll eg at i o n s t h a t C B S bre a c he d dutie s o we d to DKS a s a re sult of the profe s siona l (c onsulting) se rvic e s tha t “ DKS e ngage d t he m t o pe rform .” C e rta inly ,

2tha t c la i m c onstitute s a “ dispute [] of a ny kind be twe e n [DKS a nd C B S] a rising out of or in c onne c tion with [the C onsulting] Agre e m e nt.” Ther ef o re , I would re m a nd for the distric t c ourt to c om pe l a rbitra tion on a l l
re m a ining c la im s tha

t fa ll within the

a rbitra tion provision’ s sc ope .

3