Guerin v. IRA Services CA1/3

Filed 8/16/23 Guerin v. IRA Services CA1/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
LESLIE GUERIN,
Plaintiff and Respondent,
A165949
v.
IRA SERVICES, INC., et al., (City & County of San Francisco
Super. Ct. No. CGC-20-587975)
Defendant and Appellant.
Leslie Guerin sued her former employer, IRA Services, Inc. (IRA) and
its owner, Forge Global, Inc., in this California action, alleging that
defendants retaliated against her for blowing the whistle on their financial
wrongdoing. The complaint alleges that IRA is also known as IRA Services
Trust Company and Forge Trust Company.
Defendants moved to compel arbitration pursuant to the terms of an
agreement Guerin signed during her employment. Before the trial court
ruled on the motion, Forge Trust Company sued Guerin in South Dakota on
the ground Guerin’s complaint in the California action disclosed confidential
information.
The trial court denied defendants’ motion to arbitrate, concluding that
they waived their right to arbitrate the California action by litigating the
South Dakota action against Guerin. On appeal, Defendants argue that
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Forge Trust Company is a separate entity from the parties to the California
action and that defendants did not engage in any conduct that waived their
right to arbitrate the employment-related dispute in California.
Unpersuaded, we affirm.
BACKGROUND
I. Allegations of the Complaint
Guerin brought this action against IRA and Forge Global, Inc. in
November 2020. She alleges that Forge Global, Inc. is a technology company
that in 2019 acquired IRA, an entity licensed and regulated by the South
Dakota Division of Banking as a trust company (Credential No. TC.037-2),
with a trust officer located at 401 East 8th Street, Suite 222, Sioux Falls,
South Dakota. IRA “is an investment company that enables investors to use
their retirement account funds to invest in real estate, private equity and
other non-exchange traded assets,” according to the complaint, and is also
known as IRA Services Trust Company and, after the 2019 acquisition, as
Forge Trust Company.
Guerin began working for IRA in February 2013, with duties that
included reviewing investment contracts to ensure they were complete and
complied with state and federal regulations.
In 2018, the South Dakota Division of Banking issued a report
identifying irregularities in IRA’s activities and placing its banking license on
a regulatory watch list. These irregularities, according to the complaint,
included performing trust company activities out of state in violation of South
Dakota law; irregularities with custodial cash management; lack of oversight
of self-directed IRA’s to prevent fraud and prohibited transactions; and
missing and inaccurate annual asset valuations. A few months later the
South Dakota Division of Banking entered into an agreement with IRA that
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set out requirements for mitigating the violations and required quarterly
progress updates through July 11, 2019.
During that period, as part of her duties Guerin began to notice and
flag a number of regulatory violations, including incomplete accounts,
prohibited transactions, and missing valuations. She continued to document
numerous regulatory violations in 2019, unaware that the sorts of
irregularities she found were the subject of the South Dakota Division of
Banking’s report. Guerin alerted managers and officers of the company—
including defendants’ vice president, Patrick Hughes—of these illegal and
prohibited transactions and notified the company’s board of directors. She
alleges she was told not to document improprieties and was subjected to
retaliation in the form of problematic work assignments, reprimands,
criticism, negative performance reviews, and lower-than-normal pay raises,
and she suffered workplace stress.
In November 2019, shortly after the acquisition of IRA was finalized,
Guerin was placed on administrative leave, allegedly in retaliation for her
complaints, and on April 1, 2020 her employment was terminated.
Based on these alleged events, Guerin asserted causes of action for
Labor Code violations, retaliation, wrongful termination, disability
discrimination, failure to accommodate disability, and intentional infliction of
emotional distress.
II. Motion to Compel Arbitration
The Arbitration Agreement
Shortly after Guerin filed her complaint, she served discovery on
Defendants. Rather than responding to Guerin’s discovery requests, on
December 24, 2020 Defendants moved to compel arbitration. The motion was
based on an agreement Guerin signed during her employment to arbitrate
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“any dispute arising out of or relating to . . . your employment with your
company,” as well as any dispute with its “employee, officer, or director.”1
The South Dakota Complaint and Discovery Requests
The hearing on the motion to compel arbitration did not take place
until June 17, 2022. In the meantime, the parties engaged in several rounds
of briefing. In her fourth (and final) supplemental opposition, filed June 6,
2022, Guerin argued that defendants had filed what she characterized as a
cross-complaint against her in South Dakota and had actively litigated the
case. In so doing, Guerin argued, defendants waived their right to arbitrate
their California dispute with her.
In the South Dakota action, filed May 20, 2021, Forge Trust Company
alleged it was chartered by the State of South Dakota and regulated by the
South Dakota Division of Banking, with a principal place of business at 401
E. 8th Street, Suite 222, Sioux Falls, South Dakota. The complaint alleged
that Guerin had access to confidential and propriety information and
documents belonging to Forge Trust Company through her former
employment with “a company providing service support to Plaintiff”; that
Guerin wrongfully obtained access to confidential regulatory information and
documents relating to Forge Trust Co. and belonging to the South Dakota
Division of Banking; that some of this information was provided to Guerin in
1 This provision is found in an agreement with a company called
TriNet, a service provider that apparently had IRA as a client. The
agreement recited that its dispute resolution procedures covered disputes
arising out of a signatory’s employment with TriNet or, if the employee
worked for one of TriNet’s customers, arising out of employment with that
company. Although Guerin contended in her opposition to the motion to
arbitrate that defendants are not entitled to the benefit of the agreement
with TriNet, she does not repeat that contention on appeal. For purposes of
this appeal only, we will assume the agreement would apply to this dispute in
the absence of waiver.
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violation of a former employee’s fiduciary duty to plaintiff; and that in the
California action Guerin disclosed confidential information. Forge Trust
Company asserted causes of action for violation of South Dakota’s Trade
Secrets Act, aiding and abetting breach of fiduciary duty, conversion, and
invasion of privacy, and it sought injunctive and declaratory relief as well as
damages.
Discovery propounded by Forge Trust Company in the South Dakota
action included a subpoena for Guerin’s attorneys in the California action to
produce documents and information relating to the South Dakota Division of
Banking investigation and reports referred to in the California complaint. It
also included interrogatories and document requests to Guerin regarding the
Division of Banking information referred to in the California complaint. One
of the interrogatories asked Guerin to “[i]dentify whether any factual
allegations contained in the [California] Complaint are inaccurate and, if so,
explain the inaccuracies.” And Guerin and two others were ordered to testify
at an evidentiary hearing that “related solely to the litigation in this
California court,” according to Guerin’s attorney.
Hearing and Ruling on Motion to Compel Arbitration
In their reply to Guerin’s fourth supplemental opposition, defendants
argued that the mere filing of a separate lawsuit does not waive the right to
arbitrate a dispute and that it was not clear the South Dakota action was an
employment-related dispute subject to the arbitration clause. At the hearing
on the motion, they argued for the first time that Forge Trust Company was a
separate entity, not a party to the California action and not Guerin’s
employer, and that defendants in the California action could not be charged
with Forge Trust Company’s actions in pursuing discovery in South Dakota.
Guerin suggested that if the court determined Forge Trust Company was not
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a party to this action, she could amend her complaint to substitute the
company for one of the Doe defendants.
The trial court in the California action denied Defendants’ motion to
compel arbitration. The court determined that Defendants waived their
contractual right to arbitration, labeling the South Dakota action a “cross-
complaint” and citing the “extensive discovery” that had occurred in that
action. It concluded that “Defendants have not merely invoked the litigation
machinery; they have almost completed most of the work the machine is
supposed to do.” This timely appeal ensued.
DISCUSSION
I. Legal Standards
On petition of a party “alleging the existence of a written agreement to
arbitrate a controversy,” a court “shall order the [parties] to arbitrate” the
matter if it determines the agreement to arbitrate exists. (Code Civ. Proc.,
§ 1281.2.) But if the court determines that the petitioner has waived the
right to compel arbitration, it may refuse to enforce the arbitration
agreement. (Code Civ. Proc., § 1281.2, subd. (a).)
“Although ‘no single test delineates the nature of the conduct that will
constitute a waiver of arbitration,’ the California Supreme Court has
identified the following factors as relevant for consideration: ‘ “ ‘(1) whether
the party’s actions are inconsistent with the right to arbitrate; (2) whether
“the litigation machinery has been substantially invoked” and the parties
“were well into preparation of a lawsuit” before the party notified the
opposing party of an intent to arbitrate; (3) whether a party either requested
arbitration enforcement close to the trial date or delayed for a long period
before seeking a stay; (4) whether a defendant seeking arbitration filed a
counterclaim without asking for a stay of the proceedings; (5) “whether
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important intervening steps [e.g. taking advantage of judicial discovery
procedures not available in arbitration] had taken place”; and (6) whether the
delay “affected, misled, or prejudiced” the opposing party,’ ” ’ ” as might occur
when the petitioning party uses judicial discovery processes to gain
information that could not have been gained in arbitration. (Spracher v. Paul
M. Zagaris, Inc. (2019) 39 Cal.App.5th 1135, 1138, quoting St. Agnes Medical
Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes);
see also Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th
348, 375, 377 (Iskanian), abrogated on other grounds in Viking River Cruises,
Inc. v. Moriana (2022) 142 S.Ct. 1906, 1924.) This test “ ‘was not intended to
suggest a mechanical process in which each factor is assessed and the side
with the greater number of favorable factors prevails. Nor . . . [is] the list of
factors . . . exclusive. Rather, these factors reflect certain principles that
should guide courts in determining whether it is appropriate to deem that a
party has waived its right to demand arbitration.’ ” (Zamora v. Lehman
(2010) 186 Cal.App.4th 1, 15 (Zamora).)
As to the sixth factor, whether the delay prejudiced the party opposing
arbitration, the United States Supreme Court has recently held that
“prejudice is not a condition of finding that a party, by litigating too long,
waived its right to stay litigation or compel arbitration under the [Federal
Arbitration Act (FAA)]”; rather, the operative question is whether the
defendant “knowingly relinquish[ed] the right to arbitrate by acting
inconsistently with that right.” (Morgan v. Sundance, Inc. (2022) 142 S.Ct.
1708, 1714 (Morgan); see Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th
956, 966–967 (Davis).) Following Morgan, the court in Davis concluded that
“prejudice therefore is no longer required to demonstrate a waiver of one’s
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right to arbitration, and the waiver inquiry should instead focus on the
actions of the holder of that right.”2 (Davis, at p. 966.)
The parties agree, as do we, that the proper standard of review here is
substantial evidence. “Generally, the determination of waiver is a question of
fact, and the trial court’s finding, if supported by sufficient evidence, is
binding on the appellate court.” (St. Agnes, supra, 31 Cal.4th at p. 1196.)
Where, as here, the facts or the inferences that may be drawn from them are
in dispute, we review the trial court’s order for substantial evidence. (See
Davis, supra, 84 Cal.App.5th at pp. 962–963.)
Finally, “an order challenged on appeal ‘is presumed correct and all
intendments and presumptions are indulged to support the order on matters
to which the record is silent. It is appellant’s burden to affirmatively
demonstrate error.’ ” (Cochran v. Rubens (1996) 42 Cal.App.4th 481, 486.)
II. The Trial Court Properly Denied the Motion to Compel
Arbitration
Defendants contend they have not taken any actions that waive their
right to arbitration. Specifically, defendants argue they promptly sought
arbitration of this dispute and have engaged in no discovery apart from
arbitration-related discovery ordered by the trial court. But this argument
rests largely on their position that Forge Trust Company is a separate entity
and its litigation-related activities in South Dakota are irrelevant to
2 The question of the continuing importance of prejudice to waiver
under California law is presented in a case pending before our high court.
(Davis, supra, 84 Cal.App.5th at p. 966, fn. 5, citing Quach v. California
Commerce Club, Inc. (2022) 78 Cal.App.5th 470, rev. granted Aug. 24, 2022,
S275121.) However, the arbitration agreement before us specifies that the
Federal Arbitration Act applies. As a result, “federal law supplies the law on
waiver in this case.” (Davis, at p. 964.)
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defendants’ right to seek arbitration in this action. The trial court implicitly
found otherwise.
A. Relationship of Forge Trust Company to Defendants
For their contention that Forge Trust Company has no role in the
California action, defendants rely primarily on a declaration filed by Patrick
Hughes in support of the motion to compel arbitration. Hughes averred that
he is the senior vice president of defendant Forge Global, Inc. as well as the
president and chairman of “Forge Trust Company, formerly known as IRA
Service Trust Company.” According to Hughes, IRA Services, Inc. “provided
administrative support services” to IRA Services Trust Company. Forge
Global, Inc. acquired both IRA Services Trust Company and IRA Services,
Inc. in late 2019, and changed the name of IRA Services Trust Company to
“Forge Trust Company.” This evidence, defendants contend, establishes that
Forge Trust Company is a different entity than either Forge Global, Inc. or
IRA Services, Inc., the named defendants in this action, and they are
therefore not accountable for Forge Trust Company’s actions in the South
Dakota case.3
On the unusual facts of this case, we conclude substantial evidence
supports the trial court’s finding otherwise. First, Guerin’s complaint
identifies Forge Trust Company as an alias of IRA Services, Inc., identifies an
address for that defendant that corresponds to Forge Trust Company’s
address in South Dakota, alleges that entity is credentialed by the South
Dakota Division of Banking as a trust company, and provides the credential
3 We note with dismay, given defendants’ acute reliance on the Hughes
declaration, that they chose not to even mention this evidence until they filed
their reply brief. (See West v. JPMorgan Chase Bank, N.A. (2013) 214
Cal.App.4th 780, 799.)
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number. Defendants do not dispute that the number belongs to Forge Trust
Company in South Dakota.
Consistent with these facts, “Forge Trust, Co.” has regularly submitted
pleadings in the California action. The January 14, 2021 reply to Guerin’s
opposition to the motion to compel was filed on behalf of “FORGE GLOBAL,
INC. and FORGE TRUST, CO. (formerly known as IRA SERVICES, INC.),”
as was a supplemental brief in support of the motion, filed March 19, 2021.
And interrogatory responses were provided on behalf of “Defendant FORGE
TRUST, CO., FORMERLY KNOWN AS IRA SERVICES, INC.” Indeed, even
in their response to the opposition in which Guerin argued defendants waived
arbitration through the South Dakota action, defendants did not contend
Forge Trust Company had no role in this action. Not until the hearing on the
motion to compel arbitration did defendants argue Forge Trust Company is
not a party to this action.
Further undercutting defendants’ suggestion that Forge Trust
Company, formerly IRA Services Trust Company, has nothing to do with
Guerin’s employment or this action, the record includes Guerin’s personnel
file, which she averred was provided to her by defendants’ counsel in
response to her prelitigation request. The accompanying letter from
defendants’ then-counsel states that the firm “has been retained to represent
IRA Services Trust Company” in response to the demand letter. Of note here,
the letter offering Guerin a position with IRA Services, Inc. is written on the
letterhead of “IRA Services Trust Company” and signed by “Michael McNair,
Trust Officer.” The file also includes a confidentiality agreement reciting
that “IRA Services, Inc. and IRA Services Trust Company (jointly ‘IRA
Services’)” had confidential information and requiring Guerin to keep that
information “during and after [her] employment with IRA Services.”
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From the record before it, the trial court could reasonably conclude that
Forge Trust Company is not a stranger to this action, or at least that the
companies are so intertwined in the context of this litigation that Forge Trust
Company’s actions in the South Dakota lawsuit may properly be attributed to
defendants in the California action.
B. Waiver of Right to Arbitration
Defendants contend, however, that even if the court considers the
South Dakota action, they have not waived their right to arbitrate the
California dispute. The trial court found otherwise, determining that the
factors set forth in St. Agnes and Iskanian “weigh heavily in favor of waiver.”
Substantial evidence supports this finding.
Defendants briefly argue that the proceedings in South Dakota are not
inconsistent with the right to arbitrate in California because the South
Dakota action contains nonarbitrable claims. (See St. Agnes, supra, 31
Cal.4th at p. 1202 [arbitration not denied when party seeking arbitration
initiated separate lawsuit with nonarbitrable causes of action].) But the
arbitration agreement here is broad and all inclusive, covering “any dispute
arising out of or relating to [Guerin’s] employment with” IRA. (See Nixon v.
AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, 947; Rice v.
Downs (2016) 248 Cal.App.4th 175, 186–187; see also Eminence Healthcare,
Inc. v. Centuri Health Ventures, LLC (2022) 74 Cal.App.5th 869, 876.) The
South Dakota complaint is based almost entirely on Guerin’s conduct in
connection with the California action—an action that is intimately tied to her
employment—and it is based in part on information she allegedly received
through her employment. And Forge Trust Company sought discovery
regarding the accuracy of all factual allegations in the California complaint.
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Defendants are in no position now to argue that the South Dakota claims
neither relate to nor arise out of Guerin’s employment.
The trial court could also properly find that the litigation machinery
was substantially invoked and the parties were well into the preparation of
the South Dakota lawsuit, through hearings, sharing of confidential
information, and discovery requests that the trial court characterized as
“voluminous.” Defendants do not dispute this characterization. The trial
court additionally found it was not clear discovery of this confidential
information—an “ ‘important intervening step[]’ ” (St. Agnes, supra, 31
Cal.4th at p. 1196)—would have been available in arbitration, and
defendants do not argue otherwise.
Defendants argue that bringing the South Dakota action did not
amount to “fil[ing] a counterclaim without asking for a stay of the
proceedings.” (St. Agnes, supra, 31 Cal.4th at p. 1196.) But in our view the
question is not whether the trial court was correct to characterize that action
as a “cross-complaint” for purposes of this St. Agnes factor. The factors are
not to be applied mechanically, but rather “ ‘reflect certain principles’ ” to
guide courts in determining whether arbitration has been waived. (Zamora,
supra, 186 Cal.App.4th at p. 15.) The trial court could reasonably conclude
that the South Dakota action, which arose out of the events underlying the
California complaint and led to discovery that focused extensively on the
California action, fell within the ambit of this “principle[].” (See ibid.)
Finally, while prejudice may not be necessary to our analysis in light of
Morgan, supra, 142 S.Ct. at p. 1714, the trial court could also properly find
this factor satisfied. Specifically, Forge Trust Company brought a separate
action in state court in South Dakota predicated on Guerin’s conduct in the
California action and subjected her to extensive discovery seeking
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information about the California dispute, depriving her of the benefit of
efficiencies and cost-savings associated with arbitration. (See McMillin
Development, Inc. v. Home Buyers Warranty (1998) 68 Cal.App.4th 896, 910;
Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 452.)
Defendants point out correctly that our high court ruled in Iskanian
that mere participation in litigation, with its attendant expenses, does not
establish prejudice (Iskanian, supra, 59 Cal.4th at pp. 376–377), but this
principle does not assist them. In Iskanian, the parties engaged in litigation
while class arbitration was foreclosed by existing law; when a later change in
the law permitted it, the defendant promptly sought arbitration. (Id. at
pp. 361, 377–378.) This reasonable delay in seeking arbitration did not result
in a waiver. (Id. at pp. 377–378.) Iskanian does not hold that the economic
efficiencies of arbitration may never be taken into account in evaluating
prejudice.
Thus, the record supports the trial court’s finding that the St. Agnes
factors weigh in favor of waiver. Defendants have not shown that the trial
court erred in denying their motion to compel arbitration.
DISPOSITION
The order denying the motion to compel arbitration is affirmed.
Respondent to recover costs on appeal.
TUCHER, P.J.
WE CONCUR:
PETROU, J.
RODRÍGUEZ, J.
Guerin v. IRA Services, Inc., et al. (A165949)
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