Everest Biosynthesis Group, LLC v. Biosynthesis Pharma Group Limited, 3:17-cv-01466

Everest (Calif. plaintiff) contracted in April 2015 with BSPG (Hong Kong) for exclusive U.S. distribution of CBD for $2 million; Agreement set prices and included an arbitration clause requiring HKIAC arbitration in Hong Kong under Hong Kong substantive law.
After the Agreement, Everest discovered BSPG and related defendants allegedly sold CBD in the U.S., contrary to exclusivity; BSPG purportedly terminated the Agreement and allegedly made fraudulent representations regarding exclusivity.
Everest filed this diversity action in California state court asserting fraud and UCL (Bus. & Prof. Code §17200) claims; removed/removed or filed in federal court (case No. 17cv1466) and sued multiple related foreign entities and an individual (Stephenson).
BSPG (and several co-defendants) moved to compel arbitration as to claims against BSPG and to stay litigation as to the other defendants pending arbitration.
Everest argued the Agreement (including the arbitration clause) is void ab initio for fraud in the execution and alternatively unconscionable; BSPG argued disputes fall squarely within the arbitration clause and the fraud alleged is inducement, not execution.
The court granted the motion to compel arbitration as to BSPG, found the arbitration clause enforceable (not void for fraud in execution or unconscionable), and stayed the action against the other defendants pending arbitration. The court ordered a joint status report by June 1, 2018.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the arbitration clause in the Agreement applies to Everest’s claims	The Agreement is void ab initio for fraud; therefore arbitration clause unenforceable	The Agreement’s arbitration clause covers disputes arising from the contract, including fraud-related claims	Held: Clause governs disputes "arising out of or in connection with" the Agreement; claims compelled to arbitration against BSPG
Whether alleged fraud voids the Agreement (fraud in execution vs. inducement)	The contract is void for fraud in the execution — Everest did not know the nature of the act	Alleged fraud is fraud in the inducement (consent obtained by misrepresentations), not execution	Held: Allegations show fraud in inducement, not execution; contract and arbitration clause valid
Whether the arbitration clause is unconscionable (procedural/substantive)	Forum selection (Hong Kong) and perceived imbalance make clause unconscionable and prevent enforcement	Parties negotiated the $2M Agreement, were sophisticated; clause is routine and not oppressive	Held: No procedural or substantive unconscionability shown under California law; clause enforceable
Whether litigation should be stayed as to non-signatory co-defendants pending arbitration	Everest impliedly opposed staying claims against others	BSPG sought a stay as to remaining defendants pending arbitration	Held: Court stayed action as to the remaining defendants pending resolution of arbitration

Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987) (federal policy favoring enforcement of arbitration agreements)
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Co., 460 U.S. 1 (1983) (arbitration provisions are to be rigorously enforced and doubts resolved in favor of arbitration)
A.T. & T. Tech., Inc. v. Commc'ns Workers, 475 U.S. 643 (1986) (presumption of arbitrability; ambiguities resolved for arbitration)
Perry v. Thomas, 482 U.S. 483 (1987) (state contract defenses govern enforceability but federal standards apply to arbitrability)
Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282 (9th Cir. 1988) (federal standards govern availability/validity of defenses to arbitration)
Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal.4th 394 (1996) (distinguishes fraud in execution, which voids contracts, from fraud in inducement)
Armendariz v. Found. Health Psychare Servs., 24 Cal.4th 83 (2000) (California unconscionability framework and sliding scale analysis)
Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519 (1997) (procedural and substantive unconscionability elements)
Duick v. Toyota Motor Sales, U.S.A., Inc., 198 Cal.App.4th 1316 (2011) (fraud in execution voids arbitration clause)