# Rossi v. Purvis

> District Court, N.D. California · January 29, 2024

URL: https://www.frixlaw.com/law-library/cases/10077897

## Case

- **Court:** District Court, N.D. California
- **Decided:** January 29, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 EDWARD ROSSI, et al., Case No. 23-cv-04148-PCP

8 Plaintiffs,
ORDER GRANTING MOTION TO
9 v. COMPEL ARBITRATION IN PART
AND DENYING LEAVE TO AMEND
10 REUBEN TIMOTHY PURVIS, III, et al.,

Defendants.
11

12
13 Plaintiffs in this matter are a company named StormQuant and one of its major
14 shareholders, Edward Rossi. Defendants are StormQuant’s former CEO Reuben Timothy Purvis
15 III, his wife Heather Purvis, and an LLC established by Mr. and Mrs. Purvis. In response to this
16 lawsuit, defendants moved to compel the arbitration of plaintiffs’ claims in this federal action as
17 well as plaintiffs’ claims in a pending state court lawsuit. Defendants do so on the basis of an
18 arbitration provision in a 2021 agreement between Mr. Purvis and StormQuant that Mr. Rossi
19 signed on StormQuant’s behalf.
20 In response to defendants’ motion, plaintiffs argue that the 2021 agreement and its
21 arbitration provision are not enforceable, that Mrs. Purvis and the LLC cannot rely upon the
22 agreement to require arbitration of the claims against them because they are not signatories, and
23 that the provision does not encompass the disputes presented here. For the reasons set forth below,
24 the Court concludes that the arbitration provision is enforceable and that it covers all of the claims
25 in this action, including the claims against non-signatory parties. The Court, however, cannot
26 enjoin the state court’s consideration of the claims pending in that separate action. Defendant’s
motion is therefore granted in part and denied in part. Plaintiffs’ motion for leave to file an
27
1 I. Background
2 Except as indicated, the following facts are not disputed.
3 StormQuant was founded as a limited liability company in 2017. Mr. Rossi was an angel
4 investor but not an employee or an executive of StormQuant. He invested $800,000 by 2018.
5 Mr. Purvis became CEO of StormQuant in January 2019. Like the other founders and
6 executives, he was paid solely via consulting fees pursuant to a consulting agreement. Those
7 payments were made to defendant Collis Systems, the LLC controlled by Mr. Purvis and his wife.
8 StormQuant was reorganized as a Delaware corporation, StormQuant, Inc., around the
9 same time. As part of this process, Mr. Purvis sought to transfer assets from StormQuant LLC to
10 StormQuant, Inc., and to make himself a shareholder. Mr. Rossi says he learned about the creation
11 of StormQuant, Inc. that month and “immediately objected and demanded a further explanation.”
12 Dkt. No. 1, at ¶ 29.
13 In March 2019, an outside investor committed to investing $5 million in StormQuant. Dkt.
14 No. 21-14, at 8.
15 In April 2019, the StormQuant board of directors approved resolutions that, among other
16 things, authorized the company to enter into indemnification with directors and officers and
17 employment agreements with employees. See Dkt. No. 22-1, at 37–41. According to the
18 complaint, Mr. Purvis had previously authorized preparation of employment agreements for
19 himself and several other executives. Mr. Purvis’s employment agreement provided an annual
20 salary of $180,000, certain additional benefits, a grant of one million shares to Mr. and Mrs.
21 Purvis, and twelve months of severance pay. Mr. Purvis’s employment agreement was executed in
22 April 2019. Mr. Rossi says he did not know about these developments at the time.
23 Sometime in June 2019, the outside investor signed a term sheet regarding the anticipated
24 $5 million investment. That same month, after “several months of negotiations,” Mr. Rossi agreed
25 to accept 3.25 million shares of StormQuant, Inc. in exchange for his interest in the original LLC,
26 which would be shut down after all of its assets were transferred to the corporation. Mr. Rossi says
27 he did not know about the employment agreements with Mr. Purvis and the other executives and
1 became a board member around June 2019. In preparation for his joining the board, Mr. Purvis
2 emailed Mr. Rossi a copy of the board’s April 2019 resolutions, which included the authorization
3 to enter into indemnification and employment agreements and blank copies of those agreements.
4 Dkt. No. 22-1, at 235. Mr. Purvis says that Mr. Rossi also entered into an indemnification
5 agreement with StormQuant, Inc. in June 2019. Id. at 4.
6 On July 26, 2019, the expected outside investment in StormQuant fell through. Mr. Rossi,
7 however, continued investing in StormQuant, contributing a total of over $2 million since April
8 2019. Mr. Rossi says that throughout this time, Mr. Purvis did not tell him about the existence of
9 potential liability under the employment agreements. In December 2020, for example, Mr. Purvis
10 sent documents to Mr. Rossi representing that StormQuant had no outstanding obligations above
11 $50,000. From April 2019 until December 2022, no payments were made under the employment
12 agreements directly to Mr. Purvis or any of the other executives, but payments ultimately totaling
13 $100,000 continued to be made to Collis Systems (Mr. Purvis’s LLC).
14 In June 2020, Mr. Rossi emailed Mr. Purvis asking about the “current salary’s [sic]” for
15 executives, including Mr. Purvis, who were being considered for executive compensation plans
16 including stock options. Dkt. No. 22-1, at 238. Mr. Rossi stated that he “assume[d]” those salaries
17 were “currently being deferred and accrued for.” Id. Mr. Purvis responded that the “current salary
18 structure” had not been modified since 2019 and provided Mr. Purvis a “$180K” salary.
19 By early 2021, a dispute arose with one of the other founders of StormQuant, and that
20 founder demanded payment under the terms of his employment agreement. Mr. Rossi alleges that
21 this is the first time he learned about the employment agreements with Mr. Purvis and others. On
22 February 4, 2021, Mr. Rossi emailed Mr. Purvis and asked, “Did you have any written
23 employment agreement signed by [the other founder]?” Dkt. No. 21-13, at 3. Mr. Purvis
24 responded that he and the other executives and founders “were paid to our respective LLCs or side
25 company,” and that the “contracts that [sic] created in February of 2019 would only be executed
26 when we received our seed funding round so that we could start normal payroll, benefits, etc.” Id.
27 at 2. Mr. Purvis also said he would “get a second opinion from our employment attorney.” Id.
1 payments to Mr. Purvis’s LLC. Mr. Rossi says that Mr. Purvis then proposed that he forego
2 further compensation (including consulting fees) in exchange for additional StormQuant shares.
3 On December 7, 2021, Mr. Purvis and StormQuant executed a Restricted Stock Purchase
4 Agreement (RSPA) in which Mr. and Mrs. Purvis purchased an additional 2.25 StormQuant shares
5 for $22.50. Mr. Rossi signed the agreement on behalf of StormQuant as a director. Dkt. No. 12-1,
6 at 20. Mr. Rossi says he did so with the “understanding that (i) Purvis was foregoing any future
7 consulting payments or other compensation; and (ii) the Employment Agreements, including
8 Purvis Employment Agreement, were not valid or enforceable.” Dkt. No. 1, at ¶ 49. Mr. Rossi
9 says that he “would not have executed the Restricted Stock Purchase Agreement … if he thought
10 Purvis considered the employment agreements to be legally binding.” Id.
11 The RSPA between Mr. Purvis and StormQuant included an arbitration provision. It reads:

12
(1) Arbitration. In consideration of the promises in this agreement,
13 the purchaser agrees that any and all controversies, claims, or disputes
with anyone (including the company and any employee, officer,
14 director, shareholder or benefit plan of the company in their capacity
as such or otherwise) arising out of, relating to, or resulting from this
15 agreement, shall be subject to binding arbitration under the arbitration
rules set forth in California Code of Civil Procedure section 1280
16
through 1294.2, including section 1283.05 (the “Rules”) and pursuant
17 to California law. Disputes which the purchaser agrees to arbitrate,
and thereby agrees to waive any right to a trial by jury, include any
18 statutory claims under state or federal law, including, but not limited
to, claims under Title VII of the Civil Rights Act of 1964, the
19 Americans with Disabilities Act of 1990, the Age Discrimination in
Employment Act of 1967, the Older Workers Benefit Protection Act,
20
the Worker Adjustment and Retraining Notification Act, the
21 California Fair Employment and Housing Act, the Family and
Medical Leave Act, the California Family Rights Act, the California
22 Labor Code, claims of harassment, discrimination or wrongful
termination and any statutory claims. The purchaser further
23 understands that this agreement to arbitrate also applies to any
disputes that the company may have with the purchaser.
24

25 (2) Procedure. The purchaser agrees that any arbitration will be
administered by the American Arbitration Association (“AAA”) and
26 that the neutral arbitrator will be selected in a manner consistent with
its national rules for the resolution of employment disputes. The
27 purchaser agrees that the arbitrator shall have the power to decide any
summary judgment and/or adjudication and motions to dismiss and
1
demurrers, prior to any arbitration hearing. The purchaser also agrees
2 that the arbitrator shall have the power to award any remedies,
including attorneys’ fees and costs, available under applicable law.
3 The purchaser understands that the company will pay for any
administrative or hearing fees charged by the arbitrator or AAA
4 except that the purchaser shall pay the first $125.00 of any filing fees
associated with any arbitration the purchaser initiates. The purchaser
5
agrees that the arbitrator shall administer and conduct any arbitration
6 in a manner consistent with the Rules and that to the extent that the
AAA’s national rules for the resolution of employment disputes
7 conflict with the Rules, the Rules shall take precedence. The
purchaser agrees that the decision of the arbitrator shall be in writing.
8 The purchaser agrees that any arbitration under this agreement shall
be conducted in Santa Clara County, California.
9

10 (3) Remedy. Except as provided by the Rules and this agreement,
arbitration shall be the sole, exclusive and final remedy for any
11 dispute between the purchaser and the company. Accordingly, except
as provided for by the Rules and this agreement, neither the purchaser
12 nor the company will be permitted to pursue court action regarding
claims that are subject to arbitration. Notwithstanding, the arbitrator
13
will not have the authority to disregard or refuse to enforce any lawful
14 company policy, and the arbitrator shall not order or require the
company to adopt a policy not otherwise required by law which the
15 company has not adopted.
16 Dkt. No. 12-1, at 17–18.
17 Mr. Rossi alleges that, in April 2022, the dissatisfied founder filed a lawsuit claiming,
18 among other things, breach of contract and failure to pay wages pursuant to his employment
19 agreement.1 Dkt. No. 21-9, at 6. According to a document received by Mr. Rossi and apparently
20 prepared in response to the lawsuit, Mr. Purvis told StormQuant executives and investors
21 (including Mr. Rossi) that after the outside investment fell through in July 2019, it had been
22 “communicated clearly to the team that we would not start payroll and company benefits because
23 we did not have adequate capital,” and that the four executives, including Mr. Purvis, “were
24 treated as independent contractors as we continued to incubate StormQuant Inc and secure
25
26
1 Defendants object to Mr. Rossi’s testimony regarding the dissatisfied founder’s lawsuit as
27
lacking foundation and personal knowledge with respect to his summaries of documents not
1 funding.” Dkt. No. 21-14, at 8.2
2 In January 2023, Mr. Purvis resigned as CEO. On March 1, 2023, he filed a demand for
3 arbitration seeking $700,000 in unpaid wages under his employment agreement.
4 On August 9, 2023, StormQuant filed a declaratory action against Mr. Purvis in California
5 state court asserting that his employment agreement was not valid. Dkt. No. 12-1, at 30–42.
6 On August 15, 2023, Mr. Rossi and StormQuant filed their complaint in this action against
7 Mr. and Mrs. Purvis (as both individuals and trustees of the July 6, 2006 Purvis Trust) and Collis
8 Systems LLC. The complaint asserts claims under federal and state securities law based on
9 statements and omissions pertaining to Mr. Purvis’s employment agreement, as well as state law
10 claims for fraud, misrepresentation, and breach of fiduciary duty.
11 On September 11, 2023, the defendants moved the Court to compel arbitration of
12 plaintiffs’ claims in both this action and the state court action based on the arbitration provision in
13 the RSPA. On January 25, 2024, plaintiffs requested leave to file an amended complaint that
14 would, among other things, remove one cause of action under the California Corporations Code
15 and no longer seek rescission of the RSPA as a remedy.
16 II. Legal Standards
17 The Federal Arbitration Act provides that a “written provision in … a contract evidencing
18 a transaction involving commerce to settle by arbitration a controversy thereafter arising out of
19 such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such
20 grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The policy of
21 this statute “is to make arbitration agreements as enforceable as other contracts, but not more so.”
22 Morgan v. Sundance, Inc., 596 U.S. 411, 418 (2022) (cleaned up). The FAA “requires courts to
23 rigorously enforce agreements to arbitrate,” but “it does not require parties to arbitrate when they
24 have not agreed to.” Johnson v. Walmart Inc., 57 F.4th 677, 681 (9th Cir. 2023) (cleaned up).
25 The threshold question on any motion to compel arbitration is whether the parties formed
26
2 This document lists Mr. Purvis’s name on the title page. Defendants argue that this document
27
should not be admitted because Mr. Rossi has not established that he has personal knowledge that
1 an agreement. If there are no “genuine disputes of material fact as to whether the parties formed an
2 arbitration agreement,” the Court may deny the motion or order the parties to arbitration as
3 appropriate. See Hansen v. LMB Mortg. Servs., Inc., 1 F.4th 667, 672 (9th Cir. 2021).
4 The summary judgment standard applies to motions to compel arbitration. See Hansen, 1
5 F.4th at 670. The Court must “give to the opposing party the benefit of all reasonable doubts and
6 inferences.” Sanford v. MemberWorks, Inc., 483 F.3d 956, 963 (9th Cir. 2007). If “the existence of
7 an arbitration agreement is at issue,” courts use “state-law principles of contract interpretation to
8 decide whether a contractual obligation to arbitrate exists.” Id. at 681–82. “Although mutual assent
9 is generally a question of fact, whether a certain set of facts is sufficient to establish a contract is a
10 question of law.” Oberstein v. Live Nation Ent., Inc., 60 F.4th 505, 517 (9th Cir. 2023). The Court
11 can only grant or deny a motion to compel arbitration if there are no genuine disputes of material
12 fact as to whether an arbitration agreement was formed.
13 III. Motion To Compel Arbitration
14 A. The RSPA’s Arbitration Provision Is Enforceable.
15 Plaintiffs do not dispute that Mr. Rossi voluntarily executed the RSPA on behalf of
16 StormQuant, or that he and StormQuant are bound by its terms if the agreement remains in effect
17 and is valid and enforceable. Instead, plaintiffs argue that the agreement is not in effect, and that
18 even if it is, it cannot be enforced. These arguments fail.
19 Plaintiffs first argue that the RSPA is no longer in effect because the Purvis trust
20 subsequently exchanged the shares received under the RSPA for four million preferred shares, and
21 did so pursuant to a separate agreement that does not include an arbitration provision. Plaintiffs
22 contend that this later agreement, rather than the RSPA, now controls the shares at issue. But the
23 RSPA explicitly provided that “neither this Agreement nor any term hereof may be amended,
24 waived, discharged or terminated other than by a written instrument referencing this Agreement
25 and signed by the Company and the Purchaser.” Dkt. No. 22-1, at 259. The subsequent exchange
26 agreement does not reference the RSPA, nor does it purport to terminate or modify any of its
27 provisions, including the arbitration provision. The later agreement thus provides no basis for the
1 Plaintiffs next argue that the RSPA was procured by fraud because Mr. Purvis “entered
2 into” the RSPA “under false pretenses,” and that Mr. Rossi “would have never agreed to such a
3 provision had he known (a) Purvis considered the Employment Agreements to be binding; (b)
4 Purvis authorized a one-sided Indemnification Agreement and signed it on behalf of himself and
5 the Company; and/or (c) Purvis’s true position that he was not really foregoing additional
6 compensation in exchange for millions of StormQuant shares, but rather was going to enforce the
7 Employment Agreement.” Dkt. No. 21, at 22.
8 Plaintiffs’ argument fails, however, because they do not assert that the arbitration
9 provision in the RSPA was specifically procured by fraud. Instead, they challenge the validity of
10 the RSPA as a whole on the basis that it was fraudulently induced. Under the FAA, “courts may
11 resolve challenges directed specifically to the validity of the arbitration provision itself,” but if
12 there are no arbitration-specific challenges, “the court must send to the arbitrator any other
13 challenges, including challenges to the validity of the contract as a whole.” Caremark, LLC v.
14 Chickasaw Nation, 43 F.4th 1021, 1029 (9th Cir. 2022). Specifically, “in the presence of an
15 otherwise-valid arbitration provision, a challenge that the entire agreement was fraudulently
16 induced … must be sent to the arbitrator.” Id. (cleaned up). Although defendants did not raise this
17 argument or cite Caremark in their petition or briefing, Caremark’s directive is clear: Absent a
18 specific challenge to the arbitration provision, the Court must refer to the arbitrator broader
19 challenges of the sort plaintiffs have raised with respect to the RSPA. Plaintiffs’ fraudulent
20 inducement arguments therefore do not preclude enforcement of the RSPA’s arbitration provision.
21 Plaintiffs finally argue that the RSPA’s arbitration provision is not enforceable because
22 Mr. Purvis entered into several different agreements during his tenure at StormQuant, some of
23 which included arbitration provisions (with varying terms) and some of which did not. See Dkt.
24 No. 21, at 24. Plaintiffs contend that the existence of these different agreements means that there
25 was never any meeting of the minds with respect to the parties’ agreement to arbitrate.
26 That Mr. Purvis, as CEO of StormQuant, entered multiple agreements with the company is
27 unsurprising. But the fact that these various agreements do not contain identical arbitration
1 arbitration provision at issue in this action. The only two agreements that contain potentially
2 conflicting arbitration provisions are Mr. Purvis’s employment agreement and the RSPA. But
3 defendants only seek to compel arbitration under the RSPA, and plaintiffs do not suggest that any
4 of their claims fall within the employment agreement’s arbitration provision. To the contrary,
5 plaintiffs contest whether their claims fall within the RSPA’s arbitration provision at all and
6 challenge the enforceability of the employment agreement. The fact that Mr. Purvis may have
7 entered into other agreements with different arbitration provisions—provisions which no party is
8 seeking to enforce in this action—does not provide a basis for finding the RSPA or its arbitration
9 provision unenforceable or unconscionable.
10 In sum, the RSPA’s arbitration provision is enforceable, and the FAA requires the Court to
11 enforce it. Plaintiffs are free to challenge the RSPA as a whole on the basis of fraudulent
12 inducement or otherwise, but they must raise these challenges in arbitration.
13 B. The RSPA’s Arbitration Provision May Be Enforced by Nonsignatories.
14 Mr. Purvis, who signed the RSPA, can clearly enforce its arbitration provision. But
15 plaintiffs also assert claims against Heather Purvis and Collis Systems, both of whom seek to
16 compel arbitration despite not signing the RSPA.
17 “State law determines whether a non-signatory to an agreement containing an arbitration
18 clause may compel arbitration.” Ngo v. BMW of N. Am., LLC, 23 F.4th 942, 946 (9th Cir. 2022).
19 California law (which both parties agree applies) “allows a nonparty to enforce an arbitration
20 agreement provided the nonparty has a sufficient identity of interest with a party to the agreement.
21 In particular, an agent may enforce an arbitration agreement to which its principal is a party.”
22 Ronay Family Ltd. P’ship v. Tweed, 216 Cal. App. 4th 830, 838 (2013) (cleaned up). So too may a
23 nonsignatory sued as an alter ego of a signatory. Rowe v. Exline, 153 Cal. App. 4th 1276, 1284–85
24 (2007).
25 Heather Purvis is named as a defendant in this lawsuit only in her capacity as co-trustee of
26 the July 6, 2006 Purvis Trust. Although she did not sign the RSPA herself, the agreement lists the
27 “Purchaser” party as “Reuben Timothy Purvis III and Heather Murray Purvis, Trustees of the
1 of himself and Mrs. Purvis in their capacity as trustees. Dkt. No. 12-1, at 10, 20.
2 Collis Systems is named in only two of the claims, both for aiding and abetting. Plaintiffs
3 assert that Collis “was founded, owned, and is operated” by Mr. and Mrs. Purvis, and that Collis
4 “is the alter ego of [Mr.] Purvis and Heather Purvis such that the corporate formalities
5 distinguishing them should be disregarded” because “[Mr. ]Purvis and Heather Purvis operated
6 Collis Systems and failed to adhere to numerous corporate formalities needed for Collis Systems
7 to exist as a truly distinct and separate entity.” Dkt. No. 1, at ¶ 8. Plaintiffs also assert that Mr.
8 Purvis and Collis Systems had an agency relationship. Id. at ¶ 10.
9 As these allegations make clear, both Mrs. Purvis and Collis Systems are sued as agents
10 and alter egos of Mr. Purvis or the Purvis Trust. California law thus permits both to enforce the
11 arbitration provision of the RSPA that Mr. Purvis signed on behalf of the Purvis Trust.
12 In arguing otherwise, plaintiffs emphasize that courts have found “boilerplate” allegations
13 of agency relationships insufficient to compel arbitration. The cases they cite, however, are
14 distinguishable. In Mohamed v. Uber Techs., Inc., for example, the Ninth Circuit, applying
15 California law, found general allegations that all named defendants “were the employees, agents,
16 or representatives of each other” insufficient to allow a nonsignatory to enforce an arbitration
17 agreement where there was “no specific indication of an actual agency relationship.” 848 F.3d
18 1201, 1214–15 (9th Cir. 2016). Here, by contrast, plaintiffs’ complaint is full of specific
19 allegations regarding the close agency and/or alter ego relationship between Mr. Purvis/the Purvis
20 Trust and the two nonsignatory parties. As to Mrs. Purvis, in addition to being Mr. Purvis’s spouse
21 and co-trustee, the complaint specifically alleges that she and Mr. Purvis were each acting as each
22 other’s agents. Dkt. No. 1, at ¶ 10 As to Collis Systems, the complaint alleges that the company
23 was Mr. Purvis’s alter ego, that the company belonged to Mr. and Mrs. Purvis, and that Mr. Purvis
24 was paid “through” Collis Systems. See id. at ¶¶ 8, 27, 35. These are not the kind of “boilerplate”
25 allegations found inadequate in Mohamed.
26 Accordingly, Heather Purvis and Collis Systems may each enforce the arbitration
27 provision to compel arbitration of the claims asserted against them.
1 C. Plaintiffs’ Claims Are Covered by the RSPA’s Arbitration Provision.
2 Having determined that the RSPA’s arbitration agreement can be enforced against
3 plaintiffs by all defendants to this action, the remaining question is whether plaintiffs’ claims are
4 subject to the agreement. The arbitration provision specifies that “any and all controversies,
5 claims, or disputes with anyone … arising out of, relating to, or resulting from this agreement,
6 shall be subject to binding arbitration.” Dkt. No. 20, at 17. “Generally, as a matter of federal law,
7 any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”
8 Benson v. Casa de Capri Enterprises, LLC, 980 F.3d 1328, 1330–31 (9th Cir. 2020) (cleaned up).
9 In this case, however, the Court need not rely upon this preference because it is clear that all of
10 plaintiffs’ claims relate to the RSPA and must therefore be sent to arbitration.
11 Plaintiffs’ first cause of action is for violation of federal securities laws and regulations. In
12 this cause of action, plaintiffs allege that Mr. Purvis “falsely stated that he was foregoing any
13 compensation owed from the company in exchange for [the] 2.25 million shares” he received in
14 December 2021 pursuant to the RSPA; that Mr. Purvis “concealed the fact that he believed that his
15 and the other Employment Agreements were enforceable … [by] taking 2.25 million shares of
16 stock in 2021 in lieu of any compensation purportedly due”; and that, had he been aware of these
17 facts, Mr. Rossi “would have never signed the Restricted Stock Agreement on behalf of
18 StormQuant agreeing to issue Purvis 2.25 million shares.” Dkt. No. 1, at ¶¶ 59–65. On its face,
19 this cause of action relates to the December 2021 RSPA.
20 The second cause of action asserts violation of California securities law premised on the
21 same factual allegations, and specifically seeks rescission of the December 2021 RSPA. Dkt. No.
22 1, at ¶¶ 66–70. This cause of action therefore also clearly relates to the RSPA.
23 The third cause of action is for fraud and misrepresentation. Plaintiffs allege, among other
24 deceptions, that Mr. Purvis “convinced” Mr. Rossi to “execute the Restricted Stock Agreement
25 based on Purvis’ representation that he was taking the shares in lieu of future compensation from
26 StormQuant.” Dkt. No. 1, at ¶¶ 71–78. This claim again relates to the RSPA on its face.
27 The fourth cause of action is against Heather Purvis and Collis Systems for aiding and
1 relate to the RSPA, so too do the aiding and abetting claims.
2 The fifth cause of action is for negligent misrepresentation. Plaintiffs assert that Mr. Purvis
3 “misrepresented his belief and intention regarding the enforceability of his employment
4 agreement,” in part “in order to … receive additional shares in StormQuant.” Dkt. No. 1, at ¶¶ 84–
5 89. Because these allegations also involve the shares Mr. Purvis received via the RSPA, this claim
6 also relates to the RSPA.
7 The sixth cause of action asserts that Mr. Purvis breached his fiduciary duties. Plaintiffs
8 assert in this cause of action that because Mr. Purvis “believed that the Employment Agreements
9 were enforceable … there was no basis for him to have StormQuant issue 2.25 million shares to
10 him.” Dkt. No. 1, at ¶¶ 93–94. Because this claim also involves the shares issued pursuant to the
11 RSPA, it relates to the RSPA.
12 Finally, the seventh cause of action asserts that Mrs. Purvis and Collis Systems aided and
13 abetted Mr. Purvis in breaching his fiduciary duties. Because the underlying claims relate to the
14 RSPA, the aiding and abetting claims are also related to the agreement.
15 D. This Court Lacks Jurisdiction To Consider Plaintiffs’ State Court Claims.
16 Defendants also ask the Court to compel arbitration of plaintiffs’ state court claims
17 pursuant to 9 U.S.C. § 4 and to stay the pending state court proceedings. The complaint in that
18 case seeks a declaratory judgment that Mr. Purvis’s April 2019 employment agreement is void,
19 invalid, or unenforceable, and that the arbitration agreement contained in that employment
20 agreement is invalid, unenforceable, or unconscionable. Plaintiffs also seek a declaration that the
21 arbitrator does not have jurisdiction to resolve disputes over the enforceability or validity of that
22 employment agreement.
23 This Court generally lacks the power to stay state court proceedings. The Anti-Injunction
24 Act prohibits any “court of the United States” from enjoining state court proceedings “except as
25 expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect
26 or effectuate its judgments.” 28 U.S.C. § 2283. None of these exceptions apply here.
27 Defendants have not identified any federal statute specifically authorizing the injunction
1 Court’s jurisdiction and judgments. Defendants, however, fail to demonstrate such necessity.
2 Defendants have not identified any manner in which the outcome of the state proceedings
3 will interfere with this Court’s decision to compel arbitration of the federal claims presented in
4 this lawsuit. In their state court complaint, plaintiffs are pursuing state law claims entirely different
5 from those at issue here, and plaintiffs do not seek any declaratory judgment involving the
6 December 2021 RSPA at issue in this action or its arbitration provision. Indeed, the state
7 complaint does not even mention the RSPA explicitly.
8 Defendants nonetheless contend that the inclusion in the state court complaint of a factual
9 allegation about Mr. Purvis’s 2021 share purchase is sufficient to create a potential conflict. See
10 Dkt. No. 12-1, at 36 (quoting allegation from state court complaint stating, “To make matters
11 worse, Purvis subsequently committed to forego all compensation for his service in exchange for
12 millions of StormQuant shares being assigned to him and his wife, through a family trust.”). Based
13 on this sentence alone, defendants assert that plaintiffs’ “allegations in the state court action are
14 premised on the shares [Mr. Purvis] received in the Restricted Stock Purchase Agreement.” But
15 the mere possibility that this factual issue will be addressed in the state court proceedings does not
16 pose any threat to this Court’s jurisdiction or to its judgment that the federal claims asserted in this
17 lawsuit are subject to the RSPA’s arbitration provision.
18 Defendants also appear to argue, on the basis of the same sentence, that the state court
19 claims relate to the RSPA and are therefore subject to its arbitration provision; that Section 4 of
20 the FAA, 9 U.S.C. § 4, entitles them to an order “directing that such arbitration proceed in the
21 manner provided for in [the RSPA]”; and that enjoining the state proceedings is necessary to
22 protect that requested order. But even if the arbitration provision did encompass plaintiffs’ state
23 court claims (which is doubtful), this Court would lack jurisdiction to issue the requested order.
24 The FAA “does not confer federal question jurisdiction.” Circuit City Stores, Inc. v. Najd, 294
25 F.3d 1104, 1106 (9th Cir. 2002) (cleaned up). Instead, the Court must possess jurisdiction over the
26 underlying dispute between the parties. Plaintiffs’ state court complaint does not include any
27 federal claims, and the state court parties are all alleged to be citizens of the same state. This Court
1 U.S.C. § 1331 or 28 U.S.C. § 1332. Further, the single indirect reference to the RSPA in that
2 complaint does not render the state court claims part of the same “case or controversy” that gives
3 rise to the federal claims at issue in this action, such that this Court could exercise supplemental
4 jurisdiction over the state court claims. See 28 U.S.C. § 1367(a). Because the Court lacks
5 jurisdiction to issue an order compelling arbitration of the state court claims as defendants request,
6 there is no need for the Court to enjoin the state court proceedings to protect that order.
7 In short, defendants have failed to show why an injunction staying the state court
8 proceedings is permitted notwithstanding the Anti-Injunction Act. Defendants’ motion is therefore
9 denied to the extent it seeks relief with respect to the state court proceedings.
10 E. This Action Will Be Stayed Until July 1, 2024.
11 Section 4 of the FAA directs that, in a suit involving claims subject to an arbitration
12 agreement, the Court “shall on application … stay the trial of the action until such arbitration has
13 been had in accordance with the terms of the agreement.” The Ninth Circuit, however, has carved
14 out an exception to this language, concluding that “[n]otwithstanding the language of section
15 three, a district court may either stay the action or dismiss it outright when … the court determines
16 that all of the claims raised in the action are subject to arbitration.” Forrest v. Spizzirri, 62 F.4th
17 1201, 1204–05 (9th Cir. 2023) (cleaned up).
18 The circumstances here would justify dismissing plaintiffs’ complaint outright under this
19 exception. Recently, however, the Supreme Court granted the petition for certiorari in Forrest in
20 order to decide whether the FAA allows district courts to dismiss a case when all claims are
21 subject to arbitration or whether the suit must be stayed. Given the possibility of a change in this
22 area of the law, the Court will stay this case until July 1, 2024. In the absence of new authority
23 precluding dismissal, this case will be dismissed on that date. Should the Supreme Court hold that
24 such a dismissal is not permissible, the stay will remain in place until the parties have completed
25 their arbitration of plaintiffs’ claims.
26 IV. Motion for Leave to Amend
27 Separately, plaintiffs have filed a motion for leave to file an amended complaint. The
1 no longer seek rescission of the RSPA as a remedy. Because the Court has concluded that the
2 claims in the current operative complaint must be arbitrated, however, the motion for leave to
3 amend is denied as moot. This denial is without prejudice to the parties’ ability to seek amendment
4 || in arbitration in accordance with the applicable arbitration rules.
5 || V. Conclusion
6 Defendants’ motion to compel arbitration is granted. All claims in this action are subject to
7 || the RSPA’s arbitration provision and the parties are ordered to proceed with arbitration according
8 || to the terms of the agreement. Defendants’ motion to compel arbitration of the state court claims
9 and to stay the state court proceedings is denied. Plaintiffs’ motion for leave to file an amended
10 || complaint is also denied.
11 This action shall be stayed while the parties pursue arbitration. The Court will dismiss this
12 || case on July 1, 2024 unless new authority requires that the stay be extended for so long as the
5 13 arbitration proceedings are ongoing.
14
IT IS SO ORDERED.
16 Dated: January 29, 2024
Kg Za
18
P. Casey Fitts
19 United States District Judge
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10077897. Public record. Not legal advice.