Opinion
B291021
02-18-2020
EKRAM KHAN, Plaintiff and Appellant, v. HAYMAN ADVISORS, LLC, et al., Defendants and Respondents.
Finson Law Firm and Lowell W. Finson for Plaintiff and Appellant. Littler Mendelson and Craig G. Staub for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC688596) APPEAL from an order of the Superior Court of Los Angeles County, Elizabeth R. Feffer, Judge. Affirmed. Finson Law Firm and Lowell W. Finson for Plaintiff and Appellant. Littler Mendelson and Craig G. Staub for Defendants and Respondents.
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Ekram Khan appeals from an order of dismissal entered in favor of defendants Hayman Advisors, LLC, Hayman Holdings, LLC, Robert Hayman, and Michael Treiman (collectively, Hayman defendants) after the trial court granted the Hayman defendants' motion to dismiss based on a forum selection clause set forth in Khan's employment agreement. Because Khan has not met his burden to show enforcement of the forum selection clause would be unreasonable or unfair, we affirm.
BACKGROUND AND PROCEDURAL FACTS
A. The Parties Enter into an Operating Agreement and Employment Agreement
Hayman Holdings is a Delaware limited liability corporation. At all relevant times, Hayman owned 98 percent of the company, and Treiman owned two percent. Hayman Advisors is a California limited liability corporation affiliated with Hayman. At all relevant times, Khan was a resident of Texas.
The factual background is taken from Treiman's declaration and documents filed in support of the Hayman defendants' motion to dismiss.
On October 31, 2011 Khan and Hayman Holdings entered into an operating agreement to create Dental Diagnostics, LLC, a Delaware limited liability company. The agreement designated the principal executive office of the company to be located in Houston, Texas. Dental Diagnostics later changed its name to Zuma Dental, LLC (Zuma). Khan and Hayman Holdings were the initial members of Dental Diagnostics, with Khan holding a 45 percent interest and Hayman Holdings holding a 55 percent interest. Dental Diagnostics was created to "engage in the business of manufacture and sale of [m]edical [d]evices and other lawful business." Paragraph 11.2 of the operating agreement provided that "[a]ny action to enforce or interpret this [a]greement, or to resolve disputes over this [a]greement between the [c]ompany and a [m]ember, or between or among [m]embers, will be settled by arbitration in accordance with the rules of the American Arbitration Association. Arbitration will be the exclusive dispute resolution."
On November 1, 2011 Khan and Dental Diagnostics entered into an employment agreement under which Khan would be employed as the company's chief technology officer, and Khan agreed to remain at Dental Diagnostics for at least two years. Khan and Hayman, as president of Dental Diagnostics, executed the agreement. The agreement provided for Dental Diagnostics to pay Khan a salary of $200,000 per year. Hayman Advisors paid Khan's salary from late 2013 or early 2014 until Khan's employment terminated in 2016. The employment agreement contained a forum selection clause: "This [a]greement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Texas. The parties agree that any legal proceeding, commenced by one party against the other, shall be brought in any state or [f]ederal [c]ourt having proper jurisdiction, within the [s]tate of Texas. Both parties submit to such jurisdiction, and waive any objection to venue and/or claim of inconvenient forum." B. Hayman Holdings and Zuma Sue Khan in Federal Court
On our own motion we augment the record to include the complaint filed in this action on December 28, 2017; Khan's opposition to the motion to dismiss and the supporting declarations of Khan and Lowell W. Finson filed on April 10, 2018; and the Hayman defendants' April 8, 2018 reply brief. (Cal. Rules of Court, rule 8.155(a)(1)(A).) Although the Hayman defendants correctly point out Khan should have moved to augment the record with these documents, we consider Khan's opposition and supporting evidence as well as the Hayman defendants' reply in the interests of justice. Further, both sides cite to the complaint.
On May 25, 2016 Hayman Holdings and Zuma filed a lawsuit in federal court against Khan alleging that Khan, while an employee of Zuma, developed a customer relations management program for dentists using Zuma's software, cloud storage, and programmers, but Khan refused to provide Zuma access to the program. Hayman Holdings and Zuma also alleged Khan made defamatory comments about the companies to their clients. The complaint alleged causes of action for slander, libel, interference with prospective economic relationship, breach of the employment agreement, conversion, declaratory relief, and dissolution and winding up of the company. On or about August 30, 2016 Khan filed a counterclaim against Hayman Advisors and Zuma asserting claims for wrongful termination, discrimination, harassment, and retaliation, along with other FEHA and state law claims.
On June 17, 2016 Khan filed an employment action in Los Angeles Superior Court (case No. BC624386) asserting similar claims against Hayman Advisors, Zuma, Dental Diagnostics, Hayman, and Treiman. The record does not reflect the disposition of this case, and it is not at issue in this appeal.
On November 9, 2017 Khan filed a motion to dismiss the federal action for lack of subject matter jurisdiction on the basis there was no diversity of citizenship between Khan and Zuma. Hayman Holdings and Zuma conceded Khan and Zuma were both citizens of Texas. On November 29, 2017 the district court granted the motion. Although the court noted in its order that two of the causes of action were properly before the court, in dismissing the action without prejudice the court stated "all parties apparently desire to terminate the entirety of this action without prejudice in order to litigate all claims in one forum." C. Khan Files an Employment Discrimination Action in Los Angeles Superior Court
Following the district court's dismissal of the federal action, Khan filed this action against the Hayman defendants and Martinez alleging Khan was a citizen of Texas, and "[d]uring his employment, beginning approximately four years ago and continuing through the date of his termination, [d]efendants' employees, including supervisors and managers, harassed and discriminated against [Khan] because of his Middle Eastern descent and Muslim beliefs." Khan also alleged retaliation by the Hayman defendants because of his complaints of discrimination and retaliation. The complaint asserted causes of action under the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.) for discrimination and harassment based on race and religion; retaliation; failure to prevent discrimination, harassment, and retaliation; wrongful termination in violation of public policy; intentional infliction of emotional distress; defamation; breach of fiduciary duty; breach of duty of loyalty; fraud; conversion; money had and received; and unjust enrichment.
Martinez was a former employee of Zuma. According to the Hayman defendants, he was never served with the complaint. Martinez did not join the motion to dismiss, and he is not a party to this appeal.
On February 22, 2018 counsel for the Hayman defendants sent Khan's attorney a letter demanding arbitration under the operating agreement and asserting that Khan's "employment related claims must be initiated in state or federal court within the state of Texas and are subject to Texas law" pursuant to the forum selection clause in the employment agreement. Khan refused to dismiss his claims or submit to binding arbitration. D. The Superior Court Grants the Hayman Defendants' Motion To Dismiss
On March 14, 2018 the Hayman defendants filed a motion under Code of Civil Procedure section 410.30 to dismiss the complaint under the forum selection clause in the employment agreement or, in the alternative, to compel arbitration under the operating agreement. The Hayman defendants argued the forum selection clause covered the disputes at issue and enforcement of the agreement was fair and reasonable. The Hayman defendants asserted Khan agreed to the employment agreement in an arms-length transaction, Khan benefited from the agreement, Khan lived in Texas at all relevant times, the relevant evidence was in Texas, and FEHA would not apply because the alleged conduct took place in Texas.
Code of Civil Procedure section 410.30, subdivision (a), provides, "When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just."
In his opposition, Khan asserted that although he lived in Texas, the discriminatory conduct occurred in California; he asserted valid claims under FEHA; not all defendants signed the agreement; and the Hayman defendants unreasonably delayed seeking enforcement of the forum selection clause by litigating the federal action for two years before moving to dismiss the state action. Khan also argued the Hayman defendants waived their right to compel arbitration.
After hearing oral argument, on April 25, 2018 the trial court granted the motion to dismiss. The court's minute order states, "Defendants' motion to dismiss pursuant to California Code of Civil Procedure Section 410.30 is GRANTED based on the forum selection clause in the employment agreement. [¶] The Court is not ordering the case into arbitration and staying the action." Notice of entry of judgment was filed on May 8, 2018. Khan timely appealed.
The record contains only the minute order reflecting the dismissal and notice of entry of judgment.
DISCUSSION
A. Standard of Review
We review the trial court's decision on whether to enforce a forum selection clause for an abuse of discretion. (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 213 (Korman); Quanta Computer Inc. v. Japan Communications Inc. (2018) 21 Cal.App.5th 438, 446-447; Trident Labs, Inc. v. Merrill Lynch Commercial Finance Corp. (2011) 200 Cal.App.4th 147, 154; Schlessinger v. Holland America (2004) 120 Cal.App.4th 552, 557.)
Khan urges us to review the trial court's order for substantial evidence. As the Korman court observed, "'There is a split of authority regarding the appropriate standard of review on whether a forum selection clause should be enforced through a motion to dismiss for forum non conveniens.' [Citation.] The majority of cases apply the abuse of discretion standard, not the substantial evidence standard." (Korman v. Princess Cruise Lines, Ltd., supra, 32 Cal.App.5th at p. 214, fn. 6.) As we did in Schlessinger v. Holland America, supra, 120 Cal.App.4th at page 557, we apply an abuse of discretion standard.
"A ruling that constitutes an abuse of discretion has been described as one that is 'so irrational or arbitrary that no reasonable person could agree with it.'" (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773; accord, Olive v. General Nutrition Centers, Inc. (2018) 30 Cal.App.5th 804, 817 ["A ruling will be deemed an abuse of discretion only if it is "'so irrational or arbitrary that no reasonable person could agree with it'"]; Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 147 ["trial court abuses its discretion when its decision exceeds the bounds of reason by being arbitrary, capricious or patently absurd in light of the circumstances"].) B. Enforceability of Forum Selection Clauses
"'California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable. . . . This favorable treatment is attributed to our law's devotion to the concept of one's free right to contract, and flows from the important practical effect such contractual rights have on commerce generally.'" (Handoush v. Lease Finance Group, LLC (2019) 41 Cal.App.5th 729, 734; accord, Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 146.) Mandatory forum selection clauses are "generally given effect unless enforcement would be unreasonable or unfair, and the party opposing enforcement of the clause ordinarily bears the burden of proving why it should not be enforced." (Handoush, at p. 734; accord, Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496 (Smith) ["forum selection clauses are valid and may be given effect, in the court's discretion and in the absence of a showing that enforcement of such a clause would be unreasonable"]; Verdugo, at p. 148; Schlessinger v. Holland America, supra, 120 Cal.App.4th at p. 558 ["Both California and federal law presume a contractual forum selection clause is valid and place the burden on the party seeking to overturn the forum selection clause."].) C. Hayman Had Standing To Enforce the Forum Selection Clause
The forum selection clause in the employment agreement is mandatory because it requires the parties to litigate "any legal proceeding, commenced by one party against the other . . . in any state or [f]ederal [c]ourt having proper jurisdiction, within the State of Texas." (See Verdugo v. Alliantgroup, L.P., supra, 237 Cal.App.4th at p. 147, fn. 2 ["A [forum selection] clause is mandatory if it requires the parties to litigate their disputes exclusively in the designated forum. . . ."].) Therefore, contrary to Khan's contention, the traditional forum non conveniens factors for determining whether the trial court abused its discretion in granting a motion to dismiss do not apply. (Verdugo, at p. 147, fn. 2; accord, Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 471 ["A mandatory clause ordinarily is 'given effect without any analysis of convenience; the only question is whether enforcement of the clause would be unreasonable.'"]; Berg v. MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349, 358 ["The factors that apply generally to a forum non conveniens motion do not control in a case involving a mandatory forum selection clause"].)
Khan argues the trial court should not have granted the motion to dismiss because not all defendants signed the employment agreement. The only defendant who signed the agreement was Robert Hayman, as president of Dental Diagnostics (which later became Zuma). The trial court did not abuse its discretion in rejecting this argument.
In determining whether it would be unreasonable to enforce a forum selection clause where a defendant is not a party to the agreement, courts have looked to whether the alleged conduct of the nonsignatories "is closely related to the contractual relationship." (Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490, 1494 [affirming dismissal of action based on forum selection clause where corporate parent and parent's parent did not sign agreement, but they were alleged to have participated in fraudulent representation that induced plaintiffs to enter into agreement]; accord, Bugna v. Fike (2000) 80 Cal.App.4th 229, 233 (Bugna) [affirming dismissal of action based on forum selection clause in two agreements where nonsignatory defendants negotiated agreements at issue in lawsuit]; cf. Bancomer v. Superior Court (1996) 44 Cal.App.4th 1450, 1459 (Bancomer) [bank could not enforce forum selection clause in property purchase agreement where bank did not sign agreement and was not closely related to purchase transaction].) "The key to the closely related test is whether the nonsignatories were close to the contractual relationship, not whether they were close to the third party signator. This makes sense because the forum selection clause is part of the underlying contract, and it is the contractual relationship gone awry that presumably spawns litigation and activates the clause. Giving standing to all closely related entities honors general principles of judicial economy by making all parties closely allied to the contractual relationship accountable in the same forum, thereby abating a proliferation of actions and inconsistent rulings." (Bugna, at p. 235.)
Drulias v. 1st Century Bancshares, Inc. (2018) 30 Cal.App.5th 696, relied on by Khan, is not to the contrary. In Drulias, the issue was "whether a forum selection bylaw adopted by a Delaware corporation without stockholder consent is enforceable in California." (Id. at p. 699.) The Court of Appeal concluded the forum selection clause was enforceable and affirmed the trial court's order staying the action. (Id. at p. 709.)
Here, all the defendants were closely related to the employment relationship between Khan and Zuma. Hayman signed the employment agreement as president of Dental Diagnostics (Zuma). Under the agreement, Hayman Advisors paid Khan's salary. Hayman Holdings and Khan formed Zuma under the operating agreement, which provided Hayman Holdings held a 55 percent interest in the assets of Zuma and was an initial member of Zuma. The operating agreement provided Zuma would be managed by Khan, Hayman, and Treiman. In his complaint, Khan alleged Hayman, Treiman, and Martinez were in supervisory positions at Zuma. The complaint filed by Khan with the California Department of Fair Employment and Housing asserting his FEHA claims named Hayman Advisors, Zuma, Dental Diagnostics, Hayman, and Treiman as the parties responsible for the offending conduct. Further, Khan alleged as to all defendants that their "employees, including supervisors and managers, harassed and discriminated against [Khan] because of his Middle Eastern descent and Muslim beliefs." D. The Forum Selection Clause Does Not Violate Public Policy
Khan asserts the forum selection clause violates California public policy because he cannot bring his FEHA claims in Texas. This claim lacks merit because Khan has not shown his employment claims are governed by FEHA or that he could not litigate his employment claims in Texas.
As the Court of Appeal concluded in Campbell v. Arco Marine, Inc. (1996) 42 Cal.App.4th 1850, 1860 (Campbell), FEHA does not "apply to nonresidents employed outside the state when the tortious conduct did not occur in California." As the Campbell court explained, it was "unwilling to ascribe to [the Legislature] a policy which would raise difficult issues of constitutional law by applying this state's employment-discrimination regime to nonresidents employed outside the state." (Id. at p. 1859.) Khan does not dispute he was a Texas resident during all relevant periods, as alleged in the complaint. The complaint alleges Zuma has its principal place of business in Los Angeles, but elsewhere alleges Zuma was a "citizen of the States of Texas and California." Further, the operating agreement designated the company's principal executive office would be located in Texas. The complaint does not allege where the discriminatory conduct occurred, instead only alleging "some of the conduct complained of herein was ratified in the City of Los Angeles, County of Los Angeles, State of California . . . ."
In his declaration in opposition to the motion to dismiss, Khan states in a conclusory manner, "The acts of discrimination and wrongful termination occurred in California by [d]efendants Hayman and Treiman, as well as agents and employees of other [d]efendants and occurred on many dates from 2012-2017." Khan's declaration provides no details on his place of employment, when he traveled to California for his employment, or specific conduct that occurred in California. As the Court of Appeal in Campbell concluded in affirming the trial court's determination that FEHA did not apply to the plaintiff's sexual harassment claim, the plaintiff had only a "slight" relationship with California where he was a Washington resident and the conduct occurred outside California, even though the defendant company was headquartered in California and the decisions on how to discipline the supervisor engaging in the conduct were made or ratified in California. (Campbell, supra, 42 Cal.App.4th at pp. 1852, 1858.)
Khan, in a single paragraph in his opening brief addressing this issue, relies on Drulias v. 1st Century Bancshares, Inc., supra, 30 Cal.App.5th 696. But Drulias concluded the forum selection clause there did not conflict with the California Corporations Code or California policy by requiring the plaintiff to litigate his claims in Delaware. (Id. at pp. 706-707.)
Even if Khan could show the alleged discriminatory, harassing, and retaliatory conduct took place in California, "FEHA has no express prohibition on parties selecting a forum and/or substantive antidiscrimination law other than California's. Had the Legislature intended to prohibit employers and employees from entering into agreements containing choice-of-law and forum selections clauses in lieu of the protections conferred by the FEHA, it would have so provided, because it plainly knows how to do so." (Olinick v. BMG Entertainment (2006) 138 Cal.App.4th 1286, 1304; accord, Ryze Claim Solutions LLC v. Superior Court (2019) 33 Cal.App.5th 1066, 1071 ["the forum selection clause in the [e]mployment [a]greement was not unenforceable due to any statement of public policy in FEHA"].) Here, the forum selection clause specifically provided "the rights of the parties shall be governed by[] the laws of the State of Texas." Khan has not shown he is unable to litigate his employment claims under Texas law in Texas. Accordingly, the trial court did not abuse is discretion in finding enforcement of the forum selection clause did not violate public policy. E. The Hayman Defendants Did Not Unreasonably Delay Filing Their Motion To Dismiss
Khan asserts the Hayman defendants waived their right to enforce the forum selection clause by vigorously litigating the federal action for over two years. But Khan has not presented evidence the parties litigated his employment claims during that period.
"[W]hen a party, under the terms of a forum selection clause, has the option to litigate in more than one forum, that party cannot choose to extensively litigate in the original forum by filing a cross-complaint, conducting substantial discovery, and filing motions seeking relief from the forum court, and then decide to enforce the right it otherwise would have had to compel the other party to litigate in a different forum. Such circumstances make enforcement of the forum selection clause unreasonable as a matter of law." (Trident Labs, Inc. v. Merrill Lynch Commercial Finance Corp. (2011) 200 Cal.App.4th 147, 157 [reversing trial court's grant of motion to dismiss based on forum selection clause, concluding defendant's litigation of plaintiff's claim for 19 months before filing motion was unreasonable]; accord, Global Financial Distributors Inc. v. Superior Court (2019) 35 Cal.App.5th 179, 193 ["[A] party must bring such a motion to enforce a forum selection clause within a reasonable time."]; cf. Lifeco Services Corp. v. Superior Court (1990) 222 Cal.App.3d 331, 336-337 [plaintiff's filing of action in California to obtain preliminary injunctive relief in response to perceived emergency did not constitute "a waiver of their right to a Texas forum to settle the broader dispute among the parties which touches on all aspects of their relationship"].)
Here, the only evidence in the record showing the Hayman defendants' litigation of their claims in the federal action is Khan's statement in his declaration about litigation costs: "During the two years this case has been litigated, I have had to spend thousands of dollars in travel expenses, including, but not limited to four separate flights and hotel stays, in the approximate amount of $6000.00, and understand that I am responsible for costs incurred by my attorneys, including, but not limited to mediation fees of $4000.00, filing fees of over $1000.00, deposition fees of over $4000.00." This statement about costs does not reflect what was litigated or at what time. Further, even if discovery was taken in the federal action, there is no showing it pertained to Khan's cross-complaint alleging discrimination, harassment, and retaliation. The Hayman defendants timely raised the forum selection clause in the first 90 days after this action was filed—they sent a meet and confer letter to Khan invoking the forum selection clause 56 days after the complaint was filed, then filed their motion to dismiss 20 days later. Under these circumstances, the motion to dismiss was timely filed.
Khan asserts in his opening brief that during the two years the federal action was pending, the parties conducted a full-day mediation at the cost of $4,000 for each side and took at least eight depositions, including of Hayman and Treiman. But there is nothing in the record to support Khan's factual assertions.
Khan also alleges he signed the employment agreement under duress because he was experiencing financial difficulty. But there is no evidence in the record to support this claim.
DISPOSITION
The order is affirmed. Respondents are entitled to their costs on appeal.
FEUER, J. We concur:
ZELON, Acting P. J.
SEGAL, J.