Court Opinion

ID: 4569557
Source: CourtListenerOpinion
Date Created: 2020-09-25 00:02:25.121297+00
Date Added: 2024-06-11T13:27:31.082491
License: Public Domain

Filed 9/24/20 Yao v. Pro-Management Consulting CA2/4
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                       DIVISION FOUR

YU-JUNG YAO et al.,                                                       B293864

         Plaintiffs and Respondents,                                      (Los Angeles County
                                                                          Super. Ct. No. BC702426)
         v.

PRO-MANAGEMENT CONSULTING,

         Defendants and Appellants.

      APPEAL from an order of the Superior Court of
Los Angeles County, Mark V. Mooney, Judge. Affirmed.
      Law Offices of Paul P. Cheng & Associates, John P.
Fitzmorris, Gene S. Lizaso, David T. Ching, Rebecca Gardner and
Paul P. Cheng for Defendants and Appellants.
      Yu-Jung Yao, in pro per., for Plaintiffs and Respondents.
       Defendants and appellants Pro Management Consulting,
Inc. (PMC) and John Tu appeal from the denial of their motion to
compel arbitration of their dispute with plaintiffs and
respondents Yu-Jung Yao, Yuh-Yuan Sun, and Wen-Jye Yao.
They contend the trial court erred in concluding that the
arbitration provision in the operating agreement for a related
limited liability company was unenforceable because it was not
signed. We find no error and affirm the trial court’s order
denying appellants’ motion to compel.
          FACTUAL AND PROCEDURAL HISTORY
       We provide the following summary based on the limited
record provided on appeal.1
Complaint
       Respondents filed a complaint in April 2018 against
appellants, as well as attorney Blair Greene and his law firm.2
In the complaint, respondents alleged that Wen-Jye and Sun are
a married couple residing in Taiwan with their sons Yu-Jung (an
adult) and non-party Yu-Hao (a minor). In 2014, they became

     1  The appellate record contains both a clerk’s transcript
(requested by appellants) and an appellants’ appendix (submitted
by appellants). It is unclear why appellants included both. The
clerk’s transcript contains appellants’ motion to compel
arbitration, respondents’ opposition, and appellants’ reply
thereto, along with accompanying exhibits. The appellants’
appendix contains the same documents plus additional
documents, including two earlier versions of the operating
agreement at issue here. To the extent it is not clear that
documents included in the appellants’ appendix were before the
trial court in connection with the motion to compel, we will not
consider them for the first time here.
       2Greene and his law firm are not parties to this appeal.

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interested in seeking permanent residency for their family in the
United States. They further alleged that appellant PMC was a
California corporation “engaged in the business of providing
immigration consultation services,” and that Tu was the director
and Chief Executive Officer of PMC. In 2012, Tu and PMC
formed Procal Investment and Management, LLC (Procal), a
California limited liability company, “for the purpose of
managing and operating restaurants serving as investment
targets for foreign nationals applying for U.S. permanent
residency through the Immigration Investment Program known
as the EB-5 Program.” Tu is the managing member of Procal;
together, Tu and PMC “control and manage Procal” and own 88.5
percent of the LLC.
      Respondents further alleged that they were introduced to
Tu in June of 2014. Tu told them that PMC could “provide them
with immigration consultation and application service [sic] that
would enable them to obtain permanent residency by investing in
the target project selected by PMC.” The target project was a
Nancy’s Pizza franchise restaurant, in which respondents would
be the sole owners. Tu advised respondents to submit two EB-5
applications along with a required $500,000 “investment” per
application.
      Based on the representations by Tu and PMC, respondents
alleged that they entered into four separate agreements, copies of
which they attached as exhibits to the complaint. In July 2014,
Wen-Jye and PMC entered into a consulting agreement (Wen-Jye
consulting agreement), under which PMC agreed to provide
“consulting services . . . relating to EB-5” in exchange for
payment of $64,000. In January 2015, Sun and PMC entered
into an identical consulting agreement (Sun consulting

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agreement) providing for another payment of $64,000.
      Also in July 2014, Yu-Jung entered into an investment
agreement (Yu-Jung investment agreement), pursuant to which
he obtained a 0.25 percent interest in Procal in exchange for a
$500,000 investment. Sun also entered into an identical
investment agreement (Sun investment agreement) providing for
a 0.25 percent interest in Procal in exchange for an investment of
$500,000. As a result, respondents alleged that Yu-Jung and Sun
were members of Procal, each holding a 0.25 percent interest in
the company.
      The complaint alleged that defendants Greene and his law
firm submitted respondents’ EB-5 applications in March and
April of 2015. Nancy’s Pizza Alhambra opened in August 2015.
In November 2015, Tu informed respondents that the restaurant
“was not doing well” and was relocated to La Verne, California.
Respondents alleged that they received no other information
regarding the operation or status of the business, and were
neither “informed nor consulted” regarding the decision to
relocate the restaurant.
      In 2016, respondents learned that the United States
Citizenship and Immigration Services (USCIS) had rejected their
EB-5 applications. When respondents asked Tu about it, he
informed them that “the rejection was caused by Nancy’s Pizza’s
failure to maintain 10 full time employees required by the EB-5
program.” In January 2017, Tu told respondents that appellants
would resubmit their applications, at an additional cost of $3,000.
      In January 2017, Tu, “in his capacity as manager of
Procal,” sent a letter to respondents “requesting an additional
capital contribution of up to $600,000 from each member. Tu
claimed that Procal faced challenges ‘due to the costs of our

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projects exceeding initial projections and the rising labor costs in
California,’’’ and stated that the additional funds were needed to
maintain Procal’s operations. Respondents alleged that they did
not make the additional contributions, as they had “grown
suspicious of Tu’s management and operation of Procal.” In
February 2017, Tu informed respondents that Procal could not
maintain the number of employees required by the EB-5 program
for both applications. Accordingly, Yu-Jung withdrew his EB-5
application so his investment could be combined with the Sun
application. The revised Sun application was submitted to the
USCIS by appellants in February 2017.
      Respondents alleged that from August to December, 2017,
Tu contacted them several times threatening to close Nancy’s
Pizza and to have Procal file for bankruptcy unless it received
additional capital. Respondents received a notice of Procal’s
bankruptcy filing in March 2018. Respondents also alleged that
the status of the revised Sun application was currently unknown.
      Based on these facts, the complaint alleged nine causes of
action. The first through fourth causes of action were brought by
Yu-Jung and Sun against Tu and PMC, for breach of fiduciary
duty, negligence, accounting, and breach of contract (Procal
operating agreement), respectively. In support of these claims,
Yu-Jung and Sun alleged that appellants were the majority and
controlling members of Procal, while Yu-Jung and Sun were
Procal’s minority members. They claimed that appellants
breached their fiduciary duties to them by mismanaging Procal
and that appellants’ mismanagement resulted in Procal’s
bankruptcy and the loss of respondents’ investments. In their
fourth cause of action for breach of contract, Yu-Jung and Sun
alleged that “the business of Procal was governed by an operating

                                 5
agreement by and among all of its members, as amended from
time to time.” This is the first reference in the complaint to the
Procal operating agreement, accompanied by a copy attached as
an exhibit.3 Yu-Jung and Sun further alleged that appellants
materially breached their duties under the Procal operating
agreement by, among other things, failing to maintain the
company’s books and records, improper and unauthorized
disposition of Procal’s assets, and improperly causing Procal to
file for bankruptcy without the knowledge and consent of its
other members.
       In the fifth cause of action Wen-Jye and Sun alleged
another breach of contract claim against Tu and PMC for breach
of the consulting agreements. The complaint alleged that
appellants mismanaged their EB-5 applications and “investment
projects.” Respondents brought the sixth cause of action for fraud
in the inducement and seventh cause of action for unfair business
practices against Tu and PMC, based on Tu’s fraudulent
representations that respondents could obtain permanent
residency status if they hired him and PMC and invested in
Procal. In the eighth cause of action by all respondents against
all defendants for professional negligence, the complaint alleged
that respondents “relied on Defendants’ knowledge and expertise”
in “the EB-5 application process and the operation of franchise
restaurants,” but that defendants acted negligently in providing

      3The “Amended and Restated Operating Agreement” for
Procal attached to the complaint, as well as appellants’ motion to
compel arbitration, lists an effective date of January 1, 2017. We
do not consider two earlier versions of the operating agreement
included in the Appellants’ Appendix, as there is no indication
these were before the trial court.

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their “professional consultation services” to respondents. Finally,
the ninth cause of action by all respondents alleged legal
malpractice against Greene and his law firm, related to the effort
to obtain permanent resident status for respondents.
Procal operating agreement
       The Procal operating agreement states that it is effective as
of January 1, 2017, “by and between the persons and entities
identified as Members on Schedule 1 attached hereto” and those
who later become members by executing a joinder. The purpose
of the agreement is to “provide for the management of the
business and the affairs of the Company, the allocation of profits
and losses, the distribution of cash of the Company among the
Members, the rights, obligations and interests of the Members to
each other and to the Company, and certain other matters.”
Article 13 of the agreement contains a dispute resolution
provision, which provides for alternative dispute resolution
procedures, including mediation and then arbitration, as the “sole
and exclusive” procedure for resolving “any dispute arising out of
or relating to this Agreement.” The agreement contains two
pages on which bracketed language suggests signature pages will
be attached, but does not include any signature pages. In the
attached Schedule I, Tu is listed an initial member and Yu-Jung
and Sun are listed as “investing members.”
Investment agreements
       The Yao investment agreement between Yu-Jung and
Procal, lists an effective date of July 3, 2014. Pursuant to the
agreement, Yu-Jung agreed to purchase a membership interest in
Procal for $500,000, pursuant to the terms and conditions set
forth therein. For its part, Procal agreed to “reasonably
cooperate with and assist” Yu-Jung with the application for

                                7
lawful permanent resident status, including “us[ing] reasonably
commercial efforts to expand its business and hire at least 10
additional employees as quickly as is commercially reasonable.”
The agreement also provided that Procal would buy back Yu-
Jung’s interest once he obtained permanent resident status.
         Additionally, the agreement contained a provision in which
the parties agreed to “irrevocably submit[ ]” any action or
proceeding “arising out of or related to this agreement or any
other instrument, document, or agreement executed or delivered
in connection herewith and the transactions contemplated hereby
. . . to the exclusive jurisdiction of any federal or state court
sitting in the county of Los Angeles, California,” and further
agreed that “all claims in respect of the action or proceeding may
be heard and determined in any such court.” The agreement was
signed by both parties. The Sun investment agreement, dated
January 20, 2015, contained the same terms and was signed by
Sun and an officer for Procal.
Motion to compel arbitration
         Appellants moved to compel arbitration of the entire case in
July 2018. They argued that the Procal operating agreement was
the “umbrella agreement governing the parties’ overall
relationship,” and therefore the court should enforce the
arbitration provision in that agreement. They attached copies of
the operating agreement, both consulting agreements, and both
investment agreements as exhibits.
         Respondents opposed the motion, arguing that the Procal
operating agreement was not signed and was therefore
unenforceable. Respondents also argued that several of the
parties—plaintiff Wen-Jye and defendants Greene and his law
firm—were not parties to the operating agreement. Thus,

                                 8
respondents contended arbitration was improper under Code of
Civil Procedure section 1281.2, subdivision (c),4 as there was a
possibility that a court and arbitrator could issue conflicting
rulings.
      In reply, appellants argued, as they do on appeal, that
respondents were members of the LLC and therefore bound by
the provisions of the operating agreement even if it was
unsigned, citing Corporations Code section 17701.11, subdivision
(b), which provides that “[a] person that becomes a member of a
limited liability company is deemed to assent to the operating
agreement.” They did not address respondents’ alternative
argument regarding parties who were not Procal members.
      The court held a hearing on the motion on October 4, 2018.5
On November 8, 2018, the court issued an order denying the
motion. After briefly outlining the arguments of the parties, the
court ruled as follows: “Having read the motion, the memoranda
and the declarations filed by the parties, and having heard
argument of counsel, the Court finds that because the Bylaws6 of
Procal Investment and Management, LLC, were not signed, the
arbitration agreement within will not be enforced.” The court did
not reach respondents’ argument pursuant to section 1281.2,
subdivision (c).

      4All further statutory references are to the Code of Civil
Procedure unless otherwise indicated.
      5There is no transcript of this hearing in the record and it

does not appear that a court reporter was present.
      6It appears that the court’s reference to Procal’s “Bylaws”

was intended to reflect the Procal operating agreement, as that is
the only document at issue containing an arbitration agreement.

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      Appellants timely appealed. (§ 1294, subd. (a).)
Respondents have not filed a responding brief.
                           DISCUSSION
      Appellants contend the trial court erred in denying their
motion to compel arbitration. We conclude appellants have not
met their burden to establish error.
      Section 1281.2 authorizes petitions to compel arbitration,
providing in part: “On petition of a party to an arbitration
agreement alleging the existence of a written agreement to
arbitrate a controversy and that a party thereto refuses to
arbitrate such controversy, the court shall order the petitioner
and the respondent to arbitrate the controversy if it determines
that an agreement to arbitrate the controversy exists.”
Therefore, in considering a section 1281.2 petition to compel
arbitration, a trial court must make the preliminary
determination whether there is an agreement to arbitrate. (See
Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396 [“‘[T]he
threshold question presented by a petition to compel arbitration
is whether there is an agreement to arbitrate.’”]; City of Hope v.
Bryan Cave, L.L.P. (2002) 102 Cal.App.4th 1356, 1369 [“[I]n
addition to determining whether an arbitration agreement exists,
the court needs to determine who has standing to demand
arbitration.”].)
      “In California, ‘[g]eneral principles of contract law
determine whether the parties have entered a binding agreement
to arbitrate.’” (Pinnacle Museum Tower Assn. v. Pinnacle Market
Development (US), LLC (2012) 55 Cal.4th 223, 236.) “An
essential element of any contract is the consent of the parties or
mutual assent.” (Donovan v. RRL Corp. (2001) 26 Cal.4th 261,
270.) The “right to arbitration depends on a contract, and a party

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can be compelled to submit a dispute to arbitration only if the
party has agreed in writing to do so.” (Matthau v. Superior Court
(2007) 151 Cal.App.4th 593, 598; see also Rowe v. Exline (2007)
153 Cal.App.4th 1276, 1284.) “There is no public policy favoring
arbitration of disputes which the parties have not agreed to
arbitrate.” (Engineers & Architects Assn. v. Community
Development Dept. (1994) 30 Cal.App.4th 644, 653.)
       As the moving party, appellants have the burden of proving
the existence of an agreement to arbitrate. (Aanderud v.
Superior Court (2017) 13 Cal.App.5th 880, 890.) “Where the trial
court’s decision on arbitrability is based upon resolution of
disputed facts, we review the decision for substantial evidence,”
but if no facts are in dispute, “we review the trial court’s decision
de novo.” (NORCAL Mutual Ins. Co. v. Newton (2000) 84
Cal.App.4th 64, 71-72.)
       Here, appellants sought to compel arbitration based on the
arbitration provision contained in the Procal operating
agreement. They do not dispute that the agreement is unsigned.
Instead, they rely on Corporations Code, section 17701.11,
subdivision (b), which provides that “[a] person that becomes a
member of a limited liability company is deemed to assent to the
operating agreement.” It is undisputed that Yu-Jung and Sun
became members of Procal when they entered into the
investment agreements; indeed, respondents alleged as much in
the complaint. Consequently, appellants contend that
respondents are bound by the operating agreement, including the
arbitration provision, regardless of whether they signed it.
       However, appellants have not shown that respondents’
automatic assent to be bound by the general terms of the
operating agreement, as related to the management of the entity

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and the rights among its members, translates to specific consent
to arbitrate their claims.
       In other settings, courts have distinguished between a
party’s consent to an entire agreement and an arbitration
provision within it, where circumstances indicated a lack of
consent to the latter. For example, in Romo v. Y–3 Holdings, Inc.
(2001) 87 Cal.App.4th 1153, 1157, the plaintiff signed an
employee handbook that had an arbitration provision, but did not
separately sign the arbitration section. The Court of Appeal
concluded that the arbitration provision was properly read as a
separate agreement and therefore not enforceable unless signed.
(Id. at pp. 1159–1160; see also Marcus & Millichap Real Estate
Investment Brokerage Co. v. Hock Investment Co. (1998) 68
Cal.App.4th 83, 91 [“read as a whole, the purchase agreement in
this case contemplated that the arbitration of disputes provision
would be effective only if both buyers and sellers assented to that
provision. Since the sellers did not assent to this provision the
parties did not agree to binding arbitration.”].) Although not
cited by appellants, we also note that Corporations Code section
17701.17, subdivision (b) expressly provides that a member may
consent in writing to be subject to arbitration.
       Under the circumstances present here, we are not
persuaded that it was error for the trial court to conclude there
was no mutual agreement to arbitration between the parties.
The operating agreement is unsigned, although it contains pages
suggesting that signatures were expected.7 Moreover, the

      7During oral argument, appellants’ counsel cited to a
document purporting to be an “Operating Agreement Joinder”
signed by Yu-Jung. This document is contained in the appellants’

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investment agreements that two of respondents actually signed
do not incorporate the operating agreement or reference
arbitration in any way. Indeed, the investment agreements
contain an express provision requiring the parties to submit all
claims to the jurisdiction of the court, in apparent conflict with a
purported agreement to arbitrate. As such, we conclude
appellants have not met their burden to establish the existence of
a valid arbitration agreement.8
                              DISPOSITION
       The order denying appellants’ motion to compel arbitration
is affirmed. The parties are to bear their own costs on appeal.
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                           COLLINS, J.

We concur:

WILLHITE, ACTING P.J.                            CURREY, J.

appendix but not the clerk’s transcript. Based on the record
before us, there is no indication that this document was
submitted to the trial court for consideration with the motion to
compel arbitration. We therefore do not consider it for the first
time on appeal.
      8Because we affirm the denial of the motion to compel, we

need not consider the alternate argument raised below that the
case involved parties and/or claims not subject to arbitration and
therefore that the court could have denied the motion under
section 1281.2, subdivision (c).

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