Wednesday, December 26, 2018
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Court of Appeal:
No Arbitration in Lawsuit By Deposed President Of Company Purchased by Google
Opinion Sales Arbitration Agreements Don’t Apply to Plaintiff’s Claim That He Received Too Small a Share From Sale of Australia Data Science Company He Headed
By a MetNews Staff Writer
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JEREMY HOWARD data scientist |
The ex-president of Kaggle, a data science and machine learning-focused online community, is not barred by an arbitration agreement from suing over allegedly being cheated out of his fair share of the proceeds of the sale of the company to the technology giant, Google, Div. Four of the First District Court of Appeal has held.
Kaggle was founded in 2010 in Australia by Anthony Goldbloom, who enlisted the plaintiff in the case, Jeremy Howard, to invest in the company and join it as an employee. Howard worked on Kaggle’s software platform and business plan, and helped it court other investors.
By 2013, Howard was president and chief scientist of the company. It was that year, however, that Goldbloom, the company’s CEO, convinced the board of directors to fire Howard, deflecting his own impending ouster after the board initially asked him to step down.
Howard sued Goldbloom, three other board members, and three limited partnerships, in part for what he claims was a bad-faith dilution of Kaggle stocks in 2015, when the company was on the verge of bankruptcy. He also claims that Google’s purchase price of $60 million was low, given Amazon and other companies’ professed interest in the purchase, and that the $700,000 he received in the merger was too little given the $3 million “stay bonuses” Goldbloom and chief technology officer Benjamin Hamner received as part of the deal.
Motion, Denial, Appeal
Justice Alison M. Tucher wrote the opinion, filed Friday, which affirms San Francisco Superior Court Judge Richard B. Ulmer Jr.’s denial of the defendants’ motion to compel arbitration after finding that the claims did not arise from the employment relationship covered by the agreements between the parties.
Although Howard had entered into four arbitration agreements, Tucher noted, only two of them were arguably applicable, a stock option agreement and a confidentiality agreement (“CIIAA”). She wrote:
“The stock agreement requires arbitration of ‘[a]ny and all controversies, claims, or disputes arising out of, relating to, or resulting from this Agreement.’ The CIIAA’s arbitration clause on its face is broader still, covering any and all claims ‘arising out of, relating to, or resulting from my employment with the Company.’ We must consider, then, whether this dispute arises out of, relates to, or results from either the stock agreement—under which Howard agreed to sell a steadily-decreasing amount of stock to the Company if he left within three years—or his employment with Kaggle. The operative question is whether his claims ‘have their roots in the relationship between the parties which was created by the contract.’ ”
Tucher distinguished the case from others holding employment agreements applied to tort claims arising after the end of an employment relationship. She declared:
“The dispute here is not similarly rooted in Howard’s employment relationship with Kaggle. It is true that the complaint includes allegations about events that occurred while Howard worked for the Company. But these allegations are nothing more than historical background. Howard has already released Kaggle from all claims ‘known or unknown, suspected or unsuspected, that [Howard] may possess against’ Kaggle or the other releasees protected by the 2011 Separation Agreement ‘that have occurred up until and including the Effective Date of [that] Agreement.[’] That had the effect of wholly changing his status vis-à-vis Kaggle. Except for certain narrowly circumscribed areas, which were carved out—and are not at issue here—the parties extinguished every vestige of an employment relationship, putting all disputes and potential disputes behind them.”
The jurist continued:
“Howard’s claim is instead rooted in, and any harm he suffered is measured by, his rights as a company stockholder. The dispute is whether defendants wrongfully diluted the value of his shares, breached their fiduciary duties to Howard as a minority stockholder, and unjustly enriched themselves at his expense. Defendants’ fiduciary duties to minority shareholders and alleged wrongs exist independently of any employment relationship between Howard and Kaggle.”
She also noted that the broader coverage of the CIIAA arbitration provision was similarly inapplicable, because the “dispute is not rooted in the at-will nature of his employment relationship, the Company’s confidential information, Howard’s inventions, or any obligations created by the CIIAA,” the subjects of that contract.
The case is Howard v. Goldbloom, A154298.
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