Opinion
A159013
05-28-2021
NEWSTYLE CAPITAL INVESTMENT MANAGEMENT (HONG KONG) LTD., Plaintiff and Respondent, v. MOBILE GAMING TECHNOLOGIES, INC., et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG19017242)
Appellants Mobile Gaming Technologies, Inc. (Mobile Gaming), Fred Hsu, George Weinberg, and Michael Reaves, joined by Yinchao Wang, appeal from an order denying their motion to compel arbitration of a lawsuit alleging violations of federal securities law brought by respondent Newstyle Capital Investment Management (Newstyle). The violations allegedly occurred in connection with Newstyle's purchase of a cryptocurrency created by CashBet Alderney Limited (CashBet), a wholly owned subsidiary of Mobile Gaming. The purchase agreement between Newstyle and CashBet contains an arbitration clause. The trial court held that the Mobile Gaming defendants, nonsignatories to this contract, could not compel Newstyle to arbitrate the underlying dispute.
On appeal, appellants argue that they are entitled to invoke the contract's arbitration clause under principles of agency and equitable estoppel. We disagree. Newstyle's securities lawsuit is predicated on Mobile Gaming's actions in marketing and soliciting Newstyle's purchase of unregistered securities. Because there is no evidence that appellants were acting as agents for CashBet in soliciting investors, and Newstyle's claims are not dependent upon or inextricably bound up in the contractual obligations underlying the purchase agreement, we conclude that Newstyle's claims are not arbitrable.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
Newstyle is a Hong Kong-based investment fund with offices in Menlo Park. Mobile Gaming is a Delaware corporation based in Oakland, California. Hsu, Reaves, and Weinberg are current and former directors and officers of both Mobile Gaming and CashBet. CashBet is based in the Island of Alderney, which is part of the Bailiwick of Guernsey, a self-governing territory located in the Channel Islands.
CashBet created a cryptocurrency, the CashBet Coin, for use on an online gambling platform. From January through May 2018, Mobile Gaming offered CashBet Coins by marketing to investors a written Token Purchase Agreement. The Token Purchase Agreement gave investors the right to acquire CashBet Coins from CashBet. The parties agree that the Token Purchase Agreement is an investment contract, and therefore a type of security regulated by federal securities laws and regulations.
Cryptocurrency is "any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions." "Cryptocurrency." Merriam-Webster's Collegiate Dictionary, Merriam-Webster, https://unabridged.merriam-webster.com/collegiate/cryptocurrency. Accessed 27 May. 2021.
Mobile Gaming filed a Form D "Notice of Exempt Offering of Securities" ("Form D Notice") with the Securities and Exchange Commission (SEC) in March 2018 for a securities offering involving an "Investment contract, Right to Acquire a non-security token in the Future." (Capitalization omitted.)
The Form D is used by an issuer of a security to give notice to the SEC that the issuer is engaging in the sale of unregistered securities and is claiming an exemption from registration with the SEC for this sale under Section 4(a)(5) of the Securities Act of 1933 or Rule 504 or 506 of Regulation D. (15 U.S.C. § 77(d); 17 C.F.R. §§ 230.504, 230.506; see https://www.sec.gov/smallbusiness/exemptofferings/formd.)
In May 2018, Newstyle purchased over 4.8 million CashBet Coins for $2 million under a Token Purchase Agreement during an "initial coin offering." Under the Token Purchase Agreement, CashBet agreed to develop and distribute its CashBet Coins, and to make them available for use on the "CashBet Platform." Reaves and Hsu signed the agreement on behalf of Cashbet as its directors. Mobile Gaming received Newstyle's funds at its Wells Fargo bank account in San Francisco on May 6, 2018. As described below, the Token Purchase Agreement contains an agreement to arbitrate disputes between the parties, Newstyle and CashBet.
B. The Securities Action
On May 1, 2019, Newstyle filed a complaint against appellants for violation of the Securities Act of 1933 (1933 Act) (15 U.S.C. §§ 77a et seq.). The 1933 Act "prohibit[s] the unregistered offer or sale of securities in interstate commerce, unless an exemption from registration applies." (SEC v. Capital Cove Bancorp LLC (C.D.Cal. Sep. 1, 2015, No. SACV-15-980-JLS (JCx)) 2015 U.S.Dist. LEXIS 174962, at *24).) Newstyle alleges that Mobile Gaming and its corporate directors and officers violated section 12(a)(1) of the 1933 Act (15 U.S.C. § 77l(a)(1)) by participating in the offer and sale of an unregistered security for which no exemption from registration applies under federal securities registration laws. Newstyle contends that the marketing and sale of the Token Purchase Agreement was an offering of an "investment contract," a form of security that should have been registered with the SEC. Newstyle asserts a second claim against Reaves, Weinberg, and Hsu, alleging individual liability for Mobile Gaming's securities law violations as officers and/or directors of the company under section 15(a) of the 1933 Act (15 U.S.C. § 77o). Wang allegedly solicited investors as an unregistered broker on behalf of Mobile Gaming. The complaint seeks rescissionary damages, prejudgment interest, and costs of suit.
C. The Motion to Compel Arbitration
On June 21, 2019, appellants filed a motion to compel arbitration and to stay or dismiss the underlying action. They asserted that the terms of the Token Purchase Agreement "unambiguously require all disputes, other than those relating to intellectual property, to be resolved through binding arbitration pursuant to Arbitration (Guernsey) Law."
The Token Purchase Agreement incorporated by reference certain terms and conditions agreed to by the parties. Section 15.1 of the terms provided: "Binding Arbitration: Except for any disputes, claims, suits, actions, causes of action, demands or proceedings (collectively, "Disputes") in which either Party seeks injunctive or other equitable relief for the alleged unlawful use of intellectual property ..., you and the Company (i) waive your and the Company's respective rights to have any and all Disputes arising from or related to the Agreement resolved in a court, and (ii) waive your and the Company's respective rights to a jury trial. Instead, you and the Company agree to arbitrate Disputes through binding arbitration . . . ." The term "Company" is defined as "Cashbet Alderney Limited" and the term "you" is defined as the "Purchaser," here Newstyle.
Although appellants conceded below that they were nonsignatories to the Token Purchase Agreement, they claimed the agreement's arbitration clause applied to them under principles of agency and equitable estoppel. They asserted that arbitration was required because Newstyle was suing them "precisely because of their alleged acts as agents for Cashbet Alderney," citing the complaint's allegation that appellants had solicited Newstyle's investment in CashBet Coins.
In opposing the motion to compel arbitration, Newstyle denied it had agreed to arbitrate any claims against appellants. Newstyle emphasized that it was suing appellants for their actions taken on behalf of Mobile Gaming, not Cashbet. Newstyle further argued that the equitable estoppel doctrine did not apply because Newstyle's claims arise out of appellants' violation of federal securities laws, not from any breach of the Token Purchase Agreement.
On October 24, 2019, the trial court denied the motion to compel arbitration. The court observed that the Token Purchase Agreement "does not reference expressly or impliedly the purchase of investment contracts that is the subject of this action." Nor did the agreement or its terms and conditions reference Mobile Gaming or Mobile Gaming's relationship to CashBet. The court noted that the agreement pertained to the purchase of CashBet Coins from CashBet only, and did not state any intent to apply to transactions between Newstyle and Mobile Gaming. Further, CashBet, the author of the agreement, had "made no attempt to extend the coverage of the [arbitration clause] to its related entities." Relying on Fuentes v. TMCSF, Inc. (2018) 26 Cal.App.5th 541, 552-553 (Fuentes), the court denied appellant's motion and concluded they "did not meet their burden of proving that [Newstyle] agreed to submit their claims for violations of securities laws against [Mobile Gaming] and its officers and directors to arbitration." This appeal followed.
Appellants complain that Newstyle violated the automatic stay of trial court proceedings pending this appeal by filing a first amended complaint on February 20, 2020. We decline to reach this question as appellants have not filed a motion or indicated whether they raised this matter with the trial court in the first instance.
II. DISCUSSION
" 'In general, "[t]here is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed." ' [Citation.] In the absence of conflicting extrinsic evidence, ' "[w]hether and to what extent [nonsignatories] can also enforce the arbitration clause is a question of law, which we review de novo." ' [Citation.]" (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 300 (Jensen).)
A. Governing Principles
With limited exceptions, the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) governs contractual arbitration in written contracts involving interstate or foreign commerce. (9 U.S.C. §§ 1, 2; Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122 (Kramer).) Because CashBet is a foreign company, this matter involves foreign commerce so as to implicate the FAA. (Swissmex-Rapid S.A. de C.V. v. SP Systems, LLC (2012) 212 Cal.App.4th 539, 544.) "Generally, the contractual right to compel arbitration 'may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration.' [Citation.]" (Kramer, supra, 705 F.3d 1122 at p. 1126.) However, "[t]he United States Supreme Court has held that a litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement." (Id. at 1128, citing Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 632; see id. at p. 1130 fn 5.) Accordingly, we analyze whether appellants, as nonsignatories to the arbitration provision, may nevertheless compel arbitration in this matter under California law.
As appellants correctly observe, federal and state public policy strongly favors arbitration and seeks to ensure that " 'private agreements to arbitrate are enforced according to their terms.' " (Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. (2010) 559 U.S. 662, 664; see Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) However, " ' "there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate . . . ." ' " (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744; accord, Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 855 (Cohen); Jones v. Jacobson (2011) 195 Cal.App.4th 1, 17 (Jones).) " '[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he [or she] has not agreed so to submit.' " (AT&T Technologies, Inc. v. Communications Workers of America (1986) 475 U.S. 643, 648; see also Cohen, 31 Cal.App.4th at pp. 855, 857-858.) As the parties seeking to compel arbitration, appellants bear the burden of demonstrating that Newstyle's claims against them are subject to arbitration. (Rosenthal v. Great Western Financial Sec. Corp. (1996) 14 Cal.4th 394, 413-414.)
A party seeking to compel arbitration must generally establish that he or she was a party to an arbitration agreement. (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1352-1353 (DMS Services); JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.) However, both California and federal courts have recognized certain exceptions which permit a nonsignatory to an agreement with an arbitration clause "to compel arbitration of, or be compelled to arbitrate, a dispute arising within the scope of that agreement." (DMS Services, supra, 205 Cal.App.4th at p. 1353; see also Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714 (Metalclad).) One such exception exists when a nonsignatory defendant is acting as an agent of a signatory to the arbitration agreement. (Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418 (Dryer)). An arbitration clause may also be enforced by a nonsignatory under the doctrine of equitable estoppel when the claims against the nonsignatory are dependent on, or inextricably intertwined with, the contractual obligations of the agreement containing the arbitration clause. (Jensen, supra, 18 Cal.App.5th 295 at p. 306; see also Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 229-230 (Goldman), and Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 272.) In this appeal, appellants seek to enforce the arbitration clause under principles of agency and equitable estoppel. We address each contention in turn.
B. Agency
Appellants acknowledge they were not parties to the Token Purchase Agreement. They contend, however, that Newstyle's claims are arbitrable because Newstyle is suing appellants on the basis of their alleged acts as agents for CashBet. Appellants principally rely on the corporate parent-subsidiary relationship between Mobile Gaming and CashBet and emphasize that the complaint identifies individual appellants as control persons of both companies. Newstyle responds that its lawsuit is based on Mobile Gaming's actions in marketing and soliciting Newstyle's purchase of unregistered securities. Newstyle points out that it is not suing for any breach of the Token Purchase Agreement nor does it allege that CashBet violated federal securities laws. Because there is no evidence that appellants were acting as agents for CashBet in soliciting investors, arbitration of Newstyle's claims is not required under agency principles. We conclude that Newstyle has the better argument.
i. Applicable Legal Principles
"Agency is generally a question of fact. [Citations.] Where conflicting evidence of agency is presented, we review the trial court's determinations for substantial evidence. [Citation.] . . . 'When the essential facts are not in conflict and the evidence is susceptible to a single inference, the agency determination is a matter of law for the court. [Citation.]' [Citations.]" (van't Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 562.)
Appellants rely on a line of cases holding that a nonsignatory defendant may enforce an arbitration agreement when it acts as an agent of a signatory. "[A]gents of a signatory can compel the other signatory to arbitrate so long as (1) the wrongful acts of the agents for which they are sued relate to their behavior as agents or in their capacities as agents [citation] and (2) the claims against the agents arise out of or relate to the contract containing the arbitration clause [citation] (consistent with the language of the arbitration clause." (Amisil Holdings Ltd. v. Clarium Capital Mgmt. LLC (N.D.Cal. 2007) 622 F.Supp.2d 825, 832 (Amisil); see also Dryer, supra, 40 Cal.3d at p. 418; Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 788 (Garcia) ["The [agency] exception applies, and a defendant may enforce the arbitration agreement, 'when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement' "].)
ii. Application
Appellants contend that Mobile Gaming can compel the arbitration of Newstyle's lawsuit because it was serving as an agent of CashBet when it solicited Newstyle's investment. Apart from identifying the parent-subsidiary corporate relationship between Mobile Gaming and CashBet, the existence of which Newstyle does not dispute, appellants offer scant evidence to substantiate their claim that appellants' alleged securities offering was directed by or made on behalf of CashBet.
" ' "The significant test of an agency relationship is the principal's right to control the activities of the agent. [Citations.]" ' " (Violette v. Shoup (1993) 16 Cal.App.4th 611, 620.) Appellants offered no evidence below to show that CashBet exercised control over its parent company's actions or that the individual defendants made investment solicitations on behalf of CashBet rather than Mobile Gaming. Newstyle's complaint does not support appellant's agency claim either, as its allegations make clear that the offer and sale of an unregistered security was made on behalf of Mobile Gaming, not CashBet. The complaint alleges that Mobile Gaming conducted the offering of the security sold to Newstyle; Mobile Gaming marketed to the public the CashBet Coin as a digital asset; Mobile Gaming identified itself as the "issuer" of the CashBet Coin offering on its Form D Notice to the SEC; appellants Hsu, Reaves, and Weinberg, in their capacities as officers and directors of Mobile Gaming, "approved the securities offering on behalf of Mobile Gaming"; and appellant Wang, solicited prospective investors to purchase the Token Purchase Agreement "On Behalf of Mobile Gaming." (Capitalization Omitted.) On this record, appellants have not carried their burden of demonstrating that the nonsignatory defendants were the agents of CashBet. (Oswald Machine & Equipment, Inc. v. Yip (1992) 10 Cal.App.4th 1238, 1247.)
Appellant's claim suffers from a second defect. Even if appellants could establish an agency relationship, a nonsignatory defendant may compel arbitration only "where there is a connection between the claims alleged against the nonsignatory and its agency relationship with the signatory." (Cohen, supra, at p. 863.) An agency relationship with a signatory, without more, is generally insufficient to allow a nonsignatory to enforce an agreement to arbitrate. (Jensen, supra, 18 Cal.App.5th 295, 304-305.)
Appellants have not demonstrated that Newstyle's claims against them arise out of the Token Purchase Agreement. As Newstyle points out, appellants' argument "conflates two separate events: [appellants'] solicitation of Newstyle's investment and CashBet's agreement to issue and distribute tokens for a certain price under the [Token Purchase Agreement]." Newstyle alleges that Mobile Gaming's solicitation and offer of an unregistered security renders it liable under the 1933 Act, and that Reaves, Weinberg, and Hsu are derivatively liable for such securities law violations as persons who controlled Mobile Gaming. Newstyle's lawsuit does not name CashBet as a party and does not allege that CashBet itself committed any federal securities law violations. Nor does Newstyle assert any breach of the Token Purchase Agreement to support its securities law violation claims.
Notably, registration violations under the 1933 Act do not hinge on the validity of an underlying securities sales contract. The relevant provision of the 1933 Act does not premise liability on the terms of a sales contract, as it applies to offers to sell unregistered securities as well as to actual sales. (See 15 U.S.C. § 77e(c).) Three prima facie elements are required to prove a violation of the 1933 Act: "(1) [t]hat the defendant directly or indirectly sold or offered to sell securities; (2) that no registration statement was in effect for the subject securities; and (3) that interstate means were used in connection with the offer or sale. [Citations.]" (United States SEC v. Universal Express, Inc. (S.D.N.Y. 2007) 475 F.Supp.2d 412, 422, italics added.) In short, the Mobile Gaming defendants' asserted liability arises out of their allegedly unlawful solicitation and offer of an unregistered security, not out of any contractual obligation arising from the Token Purchase Agreement.
The cases appellants rely upon to assert a nonsignatory agent's right to compel arbitration are distinguishable. In Garcia, supra, 11 Cal.App.5th 782, the plaintiff sued his employer and the staffing agency that placed him for Labor Code violations. Although the plaintiff signed an arbitration agreement with the staffing agency only, the complaint alleged workplace violations against both the agency and the employer as joint employers, referred to both as "defendants" without any distinction and alleging identical claims and conduct against both regarding unlawful and improper acts. (Id. at p. 788.) The appellate court concluded that the plaintiff's allegations were sufficient to compel arbitration of claims against the nonsignatory employer under agency and equitable estoppel principles. The court reasoned that because the staffing agency and the nonsignatory employer were allegedly "joint employers" and thus agents of one another, and the claims against both were intertwined, the nonsignatory defendant had a right to enforce the arbitration provision against the plaintiff. (Id. at pp. 787-788.) Here, Newstyle has not sued CashBet or alleged any conduct by CashBet, alone or in coordination with Mobile Gaming, to violate federal securities laws.
In Dryer, supra, 40 Cal.3d 406, a professional football player sued the Los Angeles Rams and various individuals associated with the Rams, alleging that the Rams removed him from the team's active roster in violation of his contract. (Id. at p. 409.) The trial court denied the individual defendants' petition to compel arbitration because they were not parties to the agreement containing the arbitration clause. (Id. at p. 411.) The Supreme Court reversed and directed the trial court to grant the individual defendants' motion, concluding that "[i]f, as the complaint alleges, the individual defendants, though not signatories, were acting as agents for the Rams, then they are entitled to the benefit of the arbitration provisions." (Id. at p. 418.) Unlike the present appeal, the plaintiff in Dryer alleged that the signatory defendant breached the agreement that contained the arbitration clause, and furthermore that the individual defendants were in breach of the same contract. (Ibid.) Thus, "[i]f it is true that all of the significant issues in this suit arise out of the contract or the alleged breach of contract," ordering arbitration as to the football team but not its agents would yield "bizarre" outcomes. (Ibid.) Here, Newstyle has not alleged any violation of the Token Purchase Agreement by the contract's signatory, CashBet, or anyone else, and its claims do not relate to obligations imposed by the agreement.
Finally, in Amisil, supra, 622 F.Supp.2d 825, the plaintiff, a minority investor in a limited liability company, sued the company and its officers and managers for alleged violations of federal securities law. (Id. at pp. 828-829.) The plaintiff's subscription agreement included an arbitration clause, and the defendants moved to compel arbitration of the plaintiff's claims. (Ibid.) In opposing the motion, the plaintiff argued that the individual defendants could not compel arbitration because they were not signatories to the arbitration agreement. (Id. at 830.) The district court disagreed and granted the motion after finding that the plaintiff's claims against the individual defendants had a significant relationship to the contract containing the arbitration provision. (Id. at 839.) No such nexus appears here. As discussed above, Newstyle's claims against appellants do not arise out of or relate to the contractual obligations underlying the Token Purchase Agreement. Under that agreement, CashBet was required to issue and distribute tokens to Newstyle at a certain purchase price, and Newstyle does not allege that CashBet failed to do so. Newstyle's claims against appellants do not require proof that appellants breached a duty imposed by the Token Purchase Agreement to establish a violation under federal securities laws.
Appellants cite only one case discussing a nonsignatory corporate parent's ability to enforce an arbitration agreement entered into by a subsidiary. That case, Metalclad, supra, 109 Cal.App.4th 1705 held that the nonsignatory defendant could compel enforcement of an arbitration provision under the doctrine of equitable estoppel, not agency. (Id. at p. 1708.) We discuss the applicability of Metalclad below.
As the trial court below found, we conclude that the more applicable authority is Fuentes, supra, 26 Cal.App.5th 541. In Fuentes, the plaintiff purchased a motorcycle from a dealership and executed a separate financing agreement with a third-party lender. (Id. at 545.) While the purchase agreement contained no arbitration provision, the financing agreement provided for arbitration of claims between the plaintiff and the lender or any of its agents. (Id. at pp. 545-546.). After the plaintiff brought a putative class action against the dealership, the dealership sought to compel arbitration under the lender's financing agreement. (Id. at 546-547.)
The court of appeal affirmed the trial court's denial of the motion to compel arbitration. (Fuentes, supra, 26 Cal.App.5th at pp. 547-553.) The appellate court rejected the dealership's argument that it could enforce the arbitration clause as the lender's agent. (Id. at pp. 549-551.) The court observed that " '[m]ost courts have held that a nonsignatory who is the agent of a party to a contract containing an arbitration clause may compel the other parties to the contract to arbitrate their claims against him or her for liability arising under the contract ... but not other claims. [Citations.]' [Citation.]" (Ibid.) The court concluded that the plaintiff's claims against the dealership for false advertising and other unfair practices arose out of the purchase agreement, and not out of the lender's financing contract. (Id. at p. 551; see id. at p. 553 [noting that had the plaintiff paid cash for his motorcycle, his complaint against the dealership would be identical].)
Appellants argue that Fuentes is distinguishable because, "[u]nlike here, there was simply no evidence [in Fuentes] that the non-signatory defendant had the power to bind the signatory to the arbitration agreement." We are not persuaded. In Fuentes, the arbitration clause in that case broadly applied not only to the dealership but to its "successors, assigns, parents, subsidiaries, or affiliates and/or any .... agents." (Id. at p. 549.) Here, however, the arbitration clause applies only to disputes between Newstyle and CashBet, and the Token Purchase Agreement makes no attempt to extend the coverage of the arbitration clause to related entities. Appellants have presented almost no evidence that parent company Mobile Gaming was acting on behalf of CashBet when it marketed and sold the Token Purchase Agreement as a securities offering, and no evidence that CashBet had the power to control Mobile Gaming's actions. Indeed, the evidence suggests that Mobile Gaming was acting in its own interests when it received and retained Newstyle's $2 million investment in its own bank account, and when it identified itself as the "issuer" of the securities on its Form D Notice to the SEC. We conclude that appellants have not established a right to enforce the arbitration agreement under agency principles.
Appellants dispute that Mobile Gaming was the "issuer" of the securities in question, asserting that CashBet also filed Form D Notices in March 2018. Appellants' request for judicial notice of these notices was objected to by Newstyle and ultimately never resolved by the trial court. We need not weigh in on this factual disagreement as the trial court apparently found this proffer insufficient to establish that the Mobile Gaming defendants were the agents of CashBet.
C. Equitable Estoppel
Appellants separately contend that Newstyle should be estopped from refusing to arbitrate its claims because the Token Purchase Agreement "[was] the means by which Newstyle purchased the alleged securities that are at issue in this action." Absent the Token Purchase Agreement and Newstyle's purchase of CashBet Coins, they argue, Newstyle would have no standing to bring any claim whatsoever. We conclude that equitable estoppel does not apply in these circumstances.
i. Applicable Legal Principles
A party seeking to enforce an arbitration agreement under the equitable estoppel doctrine has the burden to establish the applicability of the doctrine. (Jones, supra, 195 Cal.App.4th 1 at p. 16.) In reviewing a trial court's ruling on the equitable estoppel doctrine, we examine the plaintiff's claims alleged in the complaint and any additional facts proffered by the parties in their moving and opposition papers. A de novo review standard applies where, as here, the underlying relevant facts are undisputed. (Molecular Analytical Systems v. Cipher gen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 708 (Molecular).)
" 'Equitable estoppel precludes a party from asserting rights "he otherwise would have had against another" when his own conduct renders assertion of those rights contrary to equity.' " (Metalclad, supra, 109 Cal.App.4th at p. 1713.) "In the arbitration context, . . . [citations] . . . the equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are ' "based on the same facts and are inherently inseparable" ' from arbitrable claims against signatory defendants." (Ibid.) In other words, the doctrine applies when the claims the plaintiff asserts against the nonsignatory are " 'dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.' " (Molecular, supra, 186 Cal.App.4th at p. 715).
The doctrine's purpose is " 'to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement.' " (Molecular, supra, 186 Cal.App.4th at p. 715.) Equitable estoppel may not be invoked by a nonsignatory when a plaintiff's claims merely touch upon matters related to the agreement containing the arbitration provision. "[T]he sine qua non for allowing a nonsignatory to enforce an arbitration clause based on equitable estoppel is that the claims the plaintiff asserts against the nonsignatory are dependent on or inextricably bound up with the contractual obligations of the agreement containing the arbitration clause." (Goldman, supra, 173 Cal.App.4th at pp. 213-214, 229, italics added.)
ii. Application
Appellants state that courts "routinely allow corporate entities to compel arbitration under arbitration clauses signed by their corporate parents, subsidiaries, or affiliates," citing Metalclad, supra, 109 Cal.App.4th at 1716-1719, and several federal district court cases. While these cases involved corporate relationships, they do not stand for the proposition that an existing corporate relationship with a contracting party, without more, is sufficient to allow a nonsignatory to compel arbitration under principles of equitable estoppel.
In Metalclad, for example, the plaintiff Metalclad entered into a stock purchase agreement to sell its subsidiary company to Geologic, a subsidiary of defendant Ventana. (Metalclad, supra, 109 Cal.App.4th at pp. 1709-1710.) The stock purchase agreement included an agreement to arbitrate. (Id. at p. 1710.) Metalclad sued Ventana, Geologic and others for breach of contract, fraud and other claims, and later dropped Geologic from the suit. (Ibid.) After its motion to compel arbitration was denied (id. at p. 1711), Ventana filed an appeal. The appellate court concluded that Ventana had successfully demonstrated its right to compel arbitration under Geologic's contract with Metalclad, even though Ventana was not a signatory. (Id. at pp. 1717-1719.) The appellate court concluded that Metalclad's tort claims against Ventana were " 'intimately founded in and intertwined with' " the underlying Geologic contract because Metalclad alleged that Ventana caused Geologic to breach the contract and conspired with the other defendants to defraud Metalclad. Ventana's parent-subsidiary relationship with Geologic was thus an "integral relationship" in Metalclad's claims. (Id. at pp. 1717-1718.)
None of those circumstances are present here. Newstyle does not allege that Mobile Gaming caused CashBet to breach the terms of the Token Purchase Agreement or caused CashBet to violate federal securities law. Indeed, Newstyle's complaint does not describe the relationship between Mobile Gaming and its subsidiary CashBet, much less allege any coordination between the two companies to solicit investors in the purchase of unregistered securities. Nor does the Token Purchase Agreement reference Mobile Gaming or its relationship to CashBet.
More importantly, Newstyle's claims against Mobile Gaming and the other nonsignatory defendants do not depend upon the underlying contractual obligations found in the Token Purchase Agreement. While it is true that Newstyle's claim that appellants unlawfully sold an unregistered security relies on the existence of the Token Purchase Agreement—the security at issue in the underlying litigation—such allegation is insufficient on its own to apply the doctrine of equitable estoppel. (Goldman, supra, 173 Cal.App.4th at p. 218; see id. at p. 219 ["In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause"].)
Goldman, supra, examined this distinction at length. In Goldman, investors sued their accountants, attorneys, and investment advisors related to a fraudulent tax avoidance scheme. (Goldman, supra, 173 Cal.App.4th at p. 213.) As part of the scheme, the investment advisors established limited liability companies with the plaintiffs in which the operating agreements contained an agreement to arbitrate any disputes. (Ibid.) The nonsignatory defendants, a law firm and tax accountant, moved to compel arbitration on the basis that the plaintiffs' claims presupposed the existence of the operating agreements as the vehicle in which the fraudulent tax scheme was carried out. (Id. at p. 218.) The appellate court rejected the defendants' argument that equitable estoppel applied in these circumstances, observing that the complaints did not "rely on or use any terms or obligations of the operating agreements as a foundation for their claims." (Ibid.) The Goldman court explained that the inequity the doctrine seeks to address arises when a plaintiff relies on the substantive terms of the agreement to assert a claim against a nonsignatory defendant, and at the same time seeks to disavow the arbitration clauses of those very agreements. (Id. at p. 221.) In the court's view, the operating agreements "were merely incidental to the scheme" and "none of the terms in those agreements are alleged to have been violated or otherwise to form any part of the [plaintiffs'] complaints" and therefore no inequity would result in denying arbitration. (Id. at p. 233.)
Similarly here, Newstyle's claims do not depend on the violation of any substantive obligation, term, or condition imposed by the Token Purchase Agreement. As discussed above, that agreement required CashBet to issue and distribute a certain number of digital tokens at a certain purchase price, and Newstyle does not allege that CashBet violated the terms of this contract. On the other hand, Newstyle's claims against Mobile Gaming and the individual defendants rest solely on obligations imposed by federal law to register certain securities with the SEC before the offer or sale of such securities. While Newstyle's complaint alleges that appellants violated federal securities law in the sale of an unregistered security, the genesis of the claim arises from appellants' offer of the Token Purchase Agreement as an unregistered security, which occurred before the sale of digital tokens was consummated. (See United States SEC, supra, 475 F.Supp.2d at p. 422.) In short, the existence of the Token Purchase Agreement is incidental to Newstyle's claims that appellants marketed and sold an unauthorized security in violation of federal law.
We perceive no inequity in denying arbitration of such claims. Unlike Metalclad or other equitable estoppel cases cited by appellants, this is not a situation where Newstyle seeks to rely on the terms of the Token Purchase Agreement as the basis for its claims against appellants while refusing to arbitrate its claims with the nonsignatories. We therefore conclude that appellants may not compel Newstyle to arbitrate its claims under the Token Purchase Agreement.
In light of our conclusions, we need not consider the parties' remaining arguments.
III. DISPOSITION
The order is affirmed.
/s/_________
SANCHEZ, J. We concur. /s/_________
HUMES, P.J. /s/_________
BANKE, J.