S.S.L Investments, LLC v. Asha Oroskar

• Court: District Court, C.D. California
• Decided: October 11, 2022
• Docket: 2:22-cv-02953
• Status: Unknown

Opinion

Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 1 of 13 Page ID #:214 JS-6 'O' 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 CV 22-2953-RSWL-AS x 12 S.S.L. INVESTMENTS, LLC, ORDER re: MOTION TO COMPEL 13 Plaintiff, ARBITRATION AND DISMISS OR 14 v. STAY COURT PROCEEDINGS [27] 15 ASHA OROSKAR, ET AL., 16 Defendants. 17 18 19 Plaintiff S.S.L. Investments, LLC (“Plaintiff”) 20 brought the instant Action against Defendants Asha 21 Oroskar, Anil Oroskar, Priyanka Sharma, Pulak Sharma, 22 Gregory Rocklin, Orochem Technologies, Inc., and Kazmira 23 LLC, (“Defendants”) alleging violation of RICO, 24 conspiracy to violate RICO, fraud, fraudulent 25 concealment, unlawful business practices, and false 26 advertising. Currently before the Court is Defendants’ 27 Motion to Compel Arbitration and Dismiss or Stay Court 28 1 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 2 of 13 Page ID #:215

1 Proceedings [27].

2 Having reviewed all papers submitted pertaining to

3 this Motion, the Court NOW FINDS AND RULES AS FOLLOWS: 4 the Court GRANTS Defendants’ Motion to Compel 5 Arbitration, ORDERS the parties to arbitrate their 6 dispute in accordance with the terms of the Agreement, 7 and DISMISSES the Action without prejudice. 8 I. BACKGROUND 9 A. Factual & Procedural Background 10 In May 2018, Defendants1, representatives of 11 Shoolin and/or Orochem approached Plaintiff, 12 processor and wholesale distributor of 13 Tetrahydrocannabinol (“THC”) oil, to propose that 14 Plaintiff use Shoolin’s column and SMB 15 chromatography systems (“proprietary technology”) 16 to process THC oil. Compl. ¶¶ 22-26. 17 Specifically, Plaintiff alleges that Defendants 18 explained the effectiveness of Shoolin’s 19 proprietary technology and its ability to produce 20 THC purity levels of at least ninety percent while 21 1 Each individually named Defendant is tied, directly or 22 indirectly, to Shoolin, LLC (“Shoolin”). Defendant Asha Oroskar is President and Chief Executive Officer (“CEO”) of both Shoolin 23 and Orochem Technologies, Inc. (“Orochem”). Compl. ¶ 3, ECF 24 No. 1; Mot. to Compel Arbitration and Dismiss or Stay Court Proceedings (“Mot.”) 10:2-3, ECF No. 27. Meanwhile, Defendant 25 Anil Oroskar is Principal and Chief Technology Officer of Orochem. Compl. ¶ 4. Together, these two Defendants formed 26 Kazmira LLC (“Kazmira”) with Orochem. Id. ¶ 5. Defendants Priyanka Sharma and Pulak Sharma are co-CEOs of Kazmira. Id. 27 ¶ 7. And finally, Defendant Gregory Rocklin is a business 28 development agent for Orochem and Kazmira. Id. ¶ 8. 2 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 3 of 13 Page ID #:216

1 decreasing costs and retaining cannabinoids present

2 in the raw material. Id. ¶ 82.

3 After several months of discussing the 4 capabilities of Shoolin’s proprietary technology, 5 in August 2018, Plaintiff entered into a signed 6 contract (“the Agreement”) with Shoolin to install 7 and operate their equipment in Plaintiff’s 8 facility. Id. ¶¶ 23-38; Sealed Decl. in Supp. of 9 Appl. (“Agreement”), ECF No. 26-1. The Agreement 10 contained an arbitration clause, which stated in 11 pertinent part: “any and all disputes arising out 12 of or relating to this Agreement shall be 13 exclusively and finally resolved by binding 14 arbitration.” Agreement at 12; Mot. 8:26-27. 15 Plaintiff alleges that “Defendants installed their 16 equipment” in Plaintiff’s facility in November 2018. 17 Compl. ¶ 38. Plaintiff contends that the equipment 18 repeatedly failed to meet the promised production 19 specifications, that Defendants failed to deliver some 20 equipment, and that Defendants used Plaintiff’s facility 21 for Defendants’ own research and development rather than 22 for processing Plaintiff’s THC oil. Id. ¶¶ 38-53. 23 Plaintiff alleges that, due to the equipment’s failure, 24 it suffered loss of profits, clients, and credibility in 25 the California cannabis market. Id. ¶ 42. From 26 December 2018 to July 2019, Plaintiff continued to rely 27 on Shoolin’s claims, and at Shoolin’s request, invested 28 more money into the equipment and incurred more losses. 3 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 4 of 13 Page ID #:217

1 Id. ¶¶ 43-46. Then in August 2019, Shoolin terminated

2 its business relationship with Plaintiff and proceeded

3 to remove its equipment from Plaintiff’s facility in 4 October 2019. Id. ¶¶ 53, 54. 5 Based on these events, Plaintiff brought this 6 Action against Defendants for violation of RICO, 7 conspiracy to violate RICO, fraud, fraudulent 8 concealment, unlawful business practices, and false 9 advertising. See generally Compl. Plaintiff filed its 10 Complaint [1] on May 3, 2022. Defendants filed the 11 instant Motion [27] on July 22, 2022. Plaintiff opposed 12 [31] Defendants’ Motion on August 9, 2022, and 13 Defendants replied [32] on August 16, 2022. 14 II. DISCUSSION 15 A. Legal Standard 16 “[T]he Federal Arbitration Act (FAA) makes 17 agreements to arbitrate ‘valid, irrevocable, and 18 enforceable, save upon such grounds as exist at law or 19 in equity for the revocation of any contract.’” AT&T 20 Mobility LLC v. Concepcion, 563 U.S. 333, 336 (2011) 21 (quoting 9 U.S.C. § 2). “By its terms, the [FAA] leaves 22 no place for the exercise of discretion by a district 23 court, but instead mandates that district courts shall 24 direct the parties to proceed to arbitration on issues 25 as to which an arbitration agreement has been signed.” 26 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 27 (1985). “[A]ny doubts concerning the scope of 28 arbitrable issues should be resolved in favor of 4 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 5 of 13 Page ID #:218

1 arbitration.” Ferguson v. Corinthian Colleges, Inc.,

2 733 F.3d 928, 938 (9th Cir. 2013).

3 “Generally, a court’s role under the FAA is limited 4 to determining ‘two “gateway” issues: (1) whether there 5 is an agreement to arbitrate between the parties; and 6 (2) whether the agreement covers the dispute.’” Manuwal 7 v. BMW of N. Am., LLC, 484 F. Supp. 3d 862, 865 8 (C.D. Cal. 2020) (quoting Brennan v. Opus Bank, 796 F.3d 9 1125, 1130 (9th Cir. 2015)). 10 B. Analysis 11 Defendants assert that the Court must compel 12 arbitration under the FAA because the Agreement’s 13 arbitration clause is valid and binding on Plaintiff. 14 See generally Mot. Alternatively, Defendants invoke the 15 doctrine of equitable estoppel and agency principles to 16 compel arbitration. Id. The Court finds that the 17 doctrine of equitable estoppel applies and therefore 18 grants2 Defendants’ Motion to Compel Arbitration. 19 Non-signatories to a contract with an arbitration 20 clause may be bound to arbitration by the following 21 principles: 1) incorporation by reference; 22 2) assumption; 3) agency; 4) veil-piercing/alter ego; 23 and 5) estoppel. Comer v. Micor, Inc., 436 F.3d 1098, 24 1101 (9th Cir. 2006). Equitable estoppel “precludes a 25 party from claiming the benefits of a contract while 26 2 Since the Court grants Defendants’ Motion to Compel 27 Arbitration on equitable estoppel grounds, the Court need not 28 address the parties’ agency arguments. 5 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 6 of 13 Page ID #:219

1 simultaneously attempting to avoid the burdens that

2 contract imposes.” Id. (quoting Wash. Mut. Fin. Group,

3 LLC v. Bailey, 364 F.3d 260, 267 (5th Cir. 2004)). 4 This principle, under both federal and California 5 law, permits non-signatory defendants to invoke an 6 arbitration clause “when the causes of action against 7 the non-signatory are ‘intimately founded in and 8 intertwined’ with the underlying contract obligations.” 9 Boucher v. All. Title Co., Inc., 25 Cal. Rptr. 3d 440, 10 446 (2005). In other words, the relevant causes of 11 action must “rely on and presume the existence of the 12 contract.” Id. at 444. Relevantly, the “focus is on 13 the nature of the claims asserted by the plaintiff 14 against the non-signatory defendant.” Id. at 447. 15 Thus, claims sounding in tort that rely on or presume 16 the existence of a contract do not avoid an arbitration 17 clause. Id. (finding that a defendant could compel 18 arbitration because Plaintiff’s tort claims relied on or 19 presumed the existence of the employment agreement). 20 Defendants argue that equitable estoppel applies 21 here because Plaintiff’s claims against Defendants 22 “specifically incorporate by reference the essential 23 terms of the Agreement.” Mot. 18:20-21. Although 24 Plaintiff’s claims are based in tort, each claim 25 Plaintiff raises against Defendants relies on or refers 26 to the Agreement. See Lucas v. Hertz Corp., 875 F. 27 Supp. 2d 991, 1003 (N.D. Cal. 2012) (finding that 28 plaintiff’s claims “ma[de] reference to or presume[d] 6 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 7 of 13 Page ID #:220

1 the existence of the underlying contract since plaintiff

2 would not have been able to rent the car or have any

3 relationship with Hertz without first signing the rental 4 agreement”). 5 Each cause of action in Plaintiff’s complaint — 6 violation of RICO, conspiracy to violate RICO, fraud, 7 fraudulent concealment, unlawful business practices, and 8 false advertising — arises from Plaintiff’s contentions 9 that Defendants misrepresented the capabilities of their 10 proprietary technology, their proficiency in purifying 11 cannabis oil, the technology that would be provided, and 12 their intent to conduct research and development at 13 Plaintiff’s facility. Compl. ¶ 51. Since the Agreement 14 specified that Defendants would provide effective 15 proprietary technology and operate it in Plaintiff’s 16 facility, Plaintiff’s claims ultimately rely on 17 obligations provided in the Agreement. Agreement at 6. 18 The Court addresses Plaintiff’s claims in turn. 19 1. Claims One and Two: Violation of RICO and 20 Conspiracy to Violate RICO 21 First, Plaintiff alleges that Defendants violated 22 RICO and conspired to violate RICO. Compl. ¶¶ 17-23. 23 Specifically, Plaintiff claims Defendants committed the 24 predicate acts of wire fraud and causing the 25 transportation of persons and at least $5,000 in 26 interstate commerce by means of fraud. Id. In support 27 of these allegations, Plaintiff contends that Defendants 28 committed wire fraud by transmitting and causing to be 7 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 8 of 13 Page ID #:221

1 transmitted writings by means of wire communications in

2 interstate commerce for the purpose of defrauding

3 Plaintiff. Id. ¶ 64. Plaintiff also alleges that 4 Defendants solicited and accepted transfers of money in 5 interstate commerce with the knowledge that it was 6 obtained by fraud. Id. Finally, Plaintiff states that 7 Defendants induced Plaintiff to travel from California 8 to Illinois in furtherance of a scheme to defraud. Id. 9 Plaintiff’s claims arise out of the Agreement and 10 the parties’ conduct regarding the Agreement. First, 11 Plaintiff shares excerpts of Defendants’ interstate e- 12 mails describing the capabilities of Shoolin’s 13 proprietary technology, Orochem’s potential impact on 14 Plaintiff’s production, plans to set up Defendants’ 15 system in Plaintiff’s facility, and Defendants’ 16 willingness to “structure the deal” to guarantee such 17 outcomes. Id. ¶ 66. Plaintiff contends that 18 Defendants’ representations regarding the capabilities 19 of Shoolin’s proprietary technology constitute fraud, 20 and those capabilities are guaranteed in the Agreement. 21 Id. ¶ 37; Agreement at 19. Thus, Plaintiff’s wire fraud 22 allegations relate to the Agreement. 23 Next, the Agreement provides that Plaintiff would 24 transfer funds in interstate commerce to Defendants and 25 third parties, and Plaintiff contends it wired funds to 26 Defendants due to fraud. Section 2.10 states that 27 Plaintiff “shall pay to Shoolin an amount equal to 28 Shoolin’s Direct Manufacturing Costs with respect to 8 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 9 of 13 Page ID #:222

1 such Product.” Id. at 4. And Section 2.1 of the

2 Agreement states in pertinent part that “[Plaintiff]

3 shall supply sufficient quantities of Material . . . at 4 [Plaintiff]’s sole expense.” Agreement at 3. These 5 provisions require Plaintiff to transfer funds either 6 directly to Shoolin, to Shoolin’s representatives, or to 7 a third party. 8 Moreover, Plaintiff details two domestic wire 9 transfers from Plaintiff to Orochem in 2018 and 2019. 10 Compl. ¶ 67. Plaintiff alleges that these wire 11 transfers were sent “due to fraud” and claims that 12 Defendants defrauded Plaintiff by misrepresenting the 13 capabilities of Shoolin’s proprietary technology, the 14 equipment that Plaintiff would receive, and Defendants’ 15 use of Plaintiff’s facility. Id. ¶¶ 51, 67. And the 16 capabilities, equipment, and operation specifications 17 that Defendants allegedly misrepresented to Plaintiff 18 were ultimately outlined in Plaintiff’s the Agreement 19 with Shoolin. Id.; see generally Agreement. Therefore, 20 Plaintiff’s allegations that Defendants solicited and 21 accepted transfers of fraudulently obtained money in 22 interstate commerce arise out of or relate to the 23 Agreement. 24 Finally, Plaintiff alleges that its representative 25 traveled from California to Illinois to meet with 26 Defendants on July 26, 2018. Id. ¶ 68. Once again, 27 Plaintiff alleges this was “in the execution of a scheme 28 to defraud,” and claims the fraud was the 9 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 10 of 13 Page ID #:223

1 misrepresentation of the proprietary technology and

2 services contracted for in the Agreement. Id. ¶¶ 51,

3 68. Therefore, these claims arise out of or rely upon 4 the existence of the Agreement. 5 2. Claim Three: Fraud 6 Next, Plaintiff alleges fraud, arguing that 7 Defendants falsely claimed their proprietary technology 8 would purify crude THC oil to a minimum of ninety 9 percent concentration and it did not. Compl. ¶ 88. 10 Meanwhile, the “Specifications” section of the Agreement 11 provides that the Proprietary Technology would produce 12 “THC oil containing at least ninety percent of the THC 13 and THCA contained in raw material”. Agreement at 19. 14 Thus, Plaintiff’s claim relies on obligations set forth 15 in the Agreement. 16 3. Claim Four: Fraudulent Concealment 17 Plaintiff also alleges fraudulent concealment, 18 contending that Defendants concealed from Plaintiff that 19 their proprietary technology was not fully developed. 20 Compl. ¶¶ 94-98. Similar to Lucas, where the plaintiff 21 would not have had access to the vehicle at issue 22 without first entering the contract, here, Plaintiff 23 would not have implemented the proprietary technology if 24 Plaintiff did not first sign the Agreement. Thus, 25 Plaintiff’s claim presumes the existence of the 26 contract. 27 /// 28 /// 10 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 11 of 13 Page ID #:224

1 4. Claims Five and Six: Unlawful Business 2 Practices and False Advertising

3 Lastly, Plaintiff alleges unlawful business 4 practices and false advertising. Id. ¶¶ 99-112. In 5 support of these claims, Plaintiff alleges that 6 Defendants made material misrepresentations, omissions, 7 or untrue or misleading statements about their 8 proprietary technology and the operation of the 9 technology.3 Id. ¶¶ 102, 109. Such claims rely on the 10 existence of the Agreement because the asserted 11 effectiveness of the proprietary technology, and 12 Defendants’ obligations to provide and operate the 13 technology, are established in the Agreement. Agreement 14 at 6, 19. Indeed, the Agreement provides that Shoolin 15 would “purchase, build, deliver, install, transport, and 16 use commercially reasonable efforts to qualify its 17 proprietary purification process” and that the resulting 18 THC oil would “contain at least ninety percent of the 19 3 Plaintiff bases its unlawful business practices claim on 20 section 17200 of the California Business and Professional Code, which provides that “unfair competition shall mean and include 21 any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. 22 & Prof. Code § 17200. Courts recognize that “[v]irtually any law or regulation—federal or state, statutory or common law—can serve 23 as [a] predicate for a . . . [section] 17200 ‘unlawful’ 24 violation.” Klein v. Chevron U.S.A., Inc., 137 Cal. Rptr. 3d 293, 326-27 (2012) (quoting Paulus v. Bob Lynch Ford, Inc., 43 25 Cal. Rptr. 3d 148 (2006)). The Plaintiff’s four other causes of action are suitable predicates for Plaintiff’s section 17200 26 claim. And, as stated above, this Court finds that Plaintiff’s first four claims arise from or rely on the Agreement. 27 Therefore, Plaintiff’s section 17200 claim necessarily arises 28 from or relies on the Agreement as well. 11 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 12 of 13 Page ID #:225

1 THC and THCA in the raw material.” Id. Therefore,

2 Plaintiff’s unlawful business practices and false

3 advertising claims arise out of or rely upon the 4 Agreement. 5 In sum, since all Plaintiff’s claims rely on or 6 presume the existence of the contract, Defendants may 7 compel arbitration through the doctrine of equitable 8 estoppel. 9 5. Stay or Dismiss 10 Having determined that the parties’ dispute is 11 arbitrable, the Court next addresses whether to stay or 12 dismiss this Action pending completion of arbitration 13 proceedings. Under the FAA, if the court is satisfied 14 that a dispute is referable to arbitration, it “shall on 15 application of one of the parties stay the trial of the 16 action until such arbitration has been had in accordance 17 with the terms of the agreement.” 9 U.S.C. § 3. The 18 Ninth Circuit has held that, “notwithstanding the 19 language of § 3, a district court may either stay the 20 action or dismiss it outright when, as here, the court 21 determines that all of the claims raised in the action 22 are subject to arbitration.” Johnmohammadi v. 23 Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 24 2014). All of Plaintiff’s claims are subject to 25 arbitration, and neither party argues for a stay in the 26 event the Court compels arbitration of all causes of 27 action. See Mot. 21:11-20l; Opp’n. 12:7-11. As a 28 result, the Court in its discretion DISMISSES the Action 12 Case 2:22-cv-02953-RSWL-AS Document 34 Filed 10/11/22 Page 13 of 13 Page ID #:226

1 without prejudice. 2 III. CONCLUSION

3 Based on the foregoing, the Court GRANTS 4 Defendants’ Motion and ORDERS the parties to arbitrate 5 their dispute in accordance with the terms of the 6 Agreement. The Action is DISMISSED without prejudice. 7 The Clerk of the Court shall close this Action. 8 IT IS SO ORDERED. 9 10 DATED: October 11, 2022 _ _ _ _ _ _ _ _ _ _ _ _/s_/R_O_N_A_L_D_ _S_._W_._ _L_E_W__ HONORABLE RONALD S.W. LEW 11 Senior U.S. District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13