Hong v. CJ CGV America Holdings, Inc.
166 Cal. Rptr. 3d 100
Cal. Ct. App.2013Background
- Plaintiffs (minority shareholders of ImaginAsian) sued defendants (CJ CGV America and related individuals) for breach of fiduciary duties and alleged valuation and programming manipulations tied to a 2009 Stock Purchase Agreement that contains an arbitration clause.
- The operative pleading is a derivative second amended complaint; plaintiffs are New Jersey residents, ImaginAsian is a Delaware corporation, and several defendants and individual directors reside in California.
- Defendants demurred (sustained with leave), later moved under Corporations Code §800 to require plaintiffs to post a bond, and also filed a separate lawsuit against plaintiff Augustine alleging misrepresentation tied to the same purchase agreement.
- Defendants moved to compel arbitration under the purchase agreement’s Section 9.17 after months of litigation activity (demurrer, discovery responses, bond motion, case management statement, and filing the separate suit).
- Plaintiffs opposed, arguing (inter alia) defendants waived arbitration by their litigation conduct and that many claims do not fall within the arbitration clause; the trial court denied the motion to compel arbitration and the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court or arbitrator decides whether defendants waived arbitration by litigation conduct | Waiver should be decided by the court because defendants litigated for months (demurrer, bond motion, discovery, separate suit) and prejudiced plaintiffs | Defendants argued Howsam/Moses H. Cone presumes arbitrator decides waiver/delay defenses under the FAA | Court held waiver-by-litigation-conduct is for the court to decide here; Howsam does not require arbitrator determination in this context |
| Whether defendants waived the right to arbitrate by their litigation conduct | Defendants’ actions were inconsistent with arbitration and prejudiced plaintiffs’ ability to obtain arbitration benefits | Defendants argued their conduct did not constitute waiver and arbitration applies under the purchase agreement | Held substantial evidence supports trial court finding of waiver (demurrer, discovery, bond motion, separate suit, case management statements) |
| Whether the FAA displaces California rule that courts decide litigation-conduct waiver | Plaintiffs relied on California statutory and decisional law (Code Civ. Proc. §1281.2; St. Agnes) | Defendants argued FAA/Howsam requires arbitrator decide waiver issues | Held FAA applies to the contract but Howsam’s language does not extend to litigation-conduct waiver; federal and state precedent support court determination |
| Whether arbitration clause covers plaintiffs’ claims | Plaintiffs argued many defendants were non-signatories and claims arise outside the agreement (licensing agreement has no arbitration clause) | Defendants argued claims arise out of or relate to the purchase agreement and attendant programming/licensing scheme | Court did not need to fully resolve all arbitrability questions because it affirmed denial on waiver grounds; plaintiffs’ arguments also supported denial |
Key Cases Cited
- Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (discussion of FAA policy favoring arbitration and references to waiver/delay defenses)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (presumption that arbitrator decides certain procedural gateway issues)
- St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal.4th 1187 (California multi‑factor waiver-by-litigation-conduct test)
- Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207 (3d Cir. holding that waiver by litigation conduct is for courts, analyzing Howsam context)
- Marie v. Allied Home Mortg. Corp., 402 F.3d 1 (1st Cir. reasoning that courts are better suited to decide litigation-conduct waiver)
- JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388 (6th Cir. similar reasoning that litigation-conduct waiver is for courts)
- Grigsby & Assocs., Inc. v. M Sec. Inv., 664 F.3d 1350 (11th Cir. discussion distinguishing Howsam and limiting its scope)