Adams v. Strathspey Crown Holdings Group CA4/3

Filed 5/20/26 Adams v. Strathspey Crown Holdings Group CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

WILLIAM P. ADAMS, JR., et al.,

Plaintiffs and Respondents, G065188

v. (Super. Ct. No. 30-2024-

01401374)

STRATHSPEY CROWN HOLDINGS

GROUP, LLC et al., OPINION

Defendants and Appellants.

Appeal from an order of the Superior Court of Orange County,

Craig L. Griffin, Judge. Affirmed.

Stradling Yocca Carlson & Rauth, Stephen L. Ram, Micol Small,

Vivian Bickford and Connor L. Kridle, for Defendants and Appellants.

Lewis & Llewellyn, Marc R. Lewis, Newton Oldfather and

Bradley E. Estes, for Plaintiffs and Respondents.

Defendants Strathspey Crown Holdings Group, LLC, Crown

Holdings, LLC, Robert Grant, and Vikram Malik appeal from the denial of

their motion to compel arbitration. We agree with the trial court the

arbitration agreement was unconscionable under California law, which we

hold governs the agreement. We further find the court permissibly declined to

compel arbitration on related claims pursuant to a separate agreement. We

affirm.

FACTS

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Plaintiffs are individuals who became members of defendant

Strathspey Crown Holdings Group, LLC, by purchasing “membership units”

through three documents: a Subscription Agreement; a Private Placement

Memorandum; and a Limited Liability Company Agreement.

Only the LLC Agreement contains an arbitration clause. It

appears on the unnumbered 39th page of the 46-page agreement. It provides

that “Each Member hereby irrevocably and unconditionally agrees to submit

exclusively to binding arbitration . . . any dispute, controversy or claim

between the parties,” with an “exception” for “an action by either party

seeking equitable . . . relief.” It does not require the LLC or its managers to

submit their disputes with members to arbitration.

The LLC Agreement has two choice of law provisions: a general

one controlling contract interpretation and a specific one controlling

arbitration. Paragraph 15.8 states: “Choice of Law. This Agreement shall be

construed under the laws of the State of Delaware without regard to conflict

of law principles.” Paragraph 15.12 states: “Arbitration and Consent to

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The plaintiffs are Mitchell Brown, Frank Bumstead, Brad

Calobrace, Harvey Carter, Sanjay Grover, Per Heden, Patrick Maxwell,

David Mordaunt, Patrick Sullivan, and Simeon Wall, Jr.

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Jurisdiction . . . [¶] . . . [¶] (c) . . . Any arbitration proceeding pursuant to this

Agreement shall be determined pursuant to the laws of the State of

California.”

The LLC Agreement also contains terms the trial court labeled

collectively a “‘forfeiture’ provision.” They list events allowing Strathspey an

“option to purchase all or any portion of” a plaintiff’s investment, based on its

“fair market value . . . as reasonably determined by the Managers in good

faith.” For example, if “[a] Member institutes or threatens to institute any

legal action or proceeding against” Strathspey, its “Managers[,] or any of

their Affiliates,” Strathspey could unilaterally “purchase all or any portion of”

an investment.

One of the plaintiffs, David Mordaunt, additionally signed a

separate agreement with defendant Crown Holdings, LLC, which defendants

describe as the “parent entity” of Strathspey. This Crown Holdings

agreement contained its own arbitration clause.

Plaintiffs sued defendants for fraud, accounting, and other

claims. Plaintiffs allege defendants Robert Grant and Vikram Malik were “at

all relevant times . . . managing member[s] of” both Strathspey and Crown

Holdings.

Defendants moved to compel arbitration. (Code Civ. Proc.,

§ 1281.2.)2 Plaintiffs opposed, asserting “the arbitration clause and LLC

Agreement are unenforceable under California Law’s unconscionability

doctrine.” They supported their opposition with a declaration from one of the

plaintiffs stating “[t]he subscription agreement, the private placement

memorandum, and . . . LLC Agreement were take it or leave them

2

All undesignated statutory references are to this code.

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agreements, imposed as a condition of investment in [Strathspey]. There was

no opportunity for bargaining or negotiating the terms.”

Defendants responded that plaintiffs “wrongly” relied on

California unconscionability law because “on substantive issues of contract

law, Delaware law governs based upon contractual choice of law provisions.”

They asserted in the alternative that the arbitration agreement was not

unconscionable under California law, either. For plaintiff Mordaunt,

defendants contended he should also be compelled to arbitrate because he

signed the Crown Holdings agreement.

The trial court denied the defendants’ motion. It found that the

LLC Agreement’s arbitration clause broadly covers Plaintiffs’ “‘dispute,

controversy [and] claim[s],’” except for the “accounting claim” and “writ”

application.

But the court also found the arbitration clause was

unconscionable under “either Delaware or California law.”

First, the court found the LLC Agreement’s arbitration clause

“was improperly buried” and “concealed[,] demonstrat[ing] a high degree of

procedural unconscionability.” It found the “Subscription Agreement” and

Private Placement Memorandum “contained no arbitration clause,” and the

latter’s “Summary of the LLC Agreement” “omitted any discussion of the

arbitration clause . . . .” The court also noted that the LLC Agreement “stand-

alone” signature page “did not reference any arbitration clause.”

Next, the trial court found that because of the “high degree of

procedural unconscionability, less substantive unconscionability is required.”

The court found the arbitration clause was substantively unconscionable

because it “lacks mutuality,” and “Defendants fail[ed] to explain why” non-

mutuality analysis in employment law cases is inapt. It further found the

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LLC Agreement’s “‘forfeiture’ provision . . . demonstrates a gross imbalance of

power.”

Finally, the trial court found that plaintiff Mordaunt should not

be compelled to arbitrate based on his separate Crown Holdings agreement.

(§ 1281.2, subd. (c).) It reasoned the other plaintiffs’ claims would not be

arbitrated, Mordaunt’s claims were sufficiently related to the other plaintiffs’

claims, and there was “a possibility of conflicting rulings on a common issue

of law or fact” if just Mordaunt was compelled to arbitrate. (Ibid.)

DISCUSSION

The Federal Arbitration Act (9 U.S.C. § 2; FAA) “‘retains an

external body of [state] law governing revocation,’” allowing arbitration

agreements to be governed by state law that “‘“arose to govern issues

concerning the validity, revocability, and enforceability of contracts

generally.”’” (McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 964.)

The initial question here is which state law governs the

unconscionability analysis. While the trial court found the arbitration

agreement was unconscionable under both California and Delaware law, we

read Delaware law to be rather strict on that issue. (See Ketler v. PFPA, LLC

(Del. 2016) 132 A.3d 746, 748 [“an unconscionable contract is one which ‘no

man in his senses and not under delusion would make on the one hand, and

as no honest or fair man would accept, on the other’”].) It is not clear whether

the arbitration agreement would be unconscionable under this test.

But we conclude California unconscionability law applies here.

The Delaware choice of law provision applies only to contract interpretation

of the LLC Agreement: “This Agreement shall be construed under the laws of

the State of Delaware.” But California law was chosen to govern arbitration:

“Any arbitration proceeding . . . shall be determined pursuant to the laws of

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the State of California.” And Delaware law tells us “‘“where specific and

general provisions conflict, the specific provision ordinarily qualifies the

meaning of the general one.”’” (Thompson Street Capital Partners IV, L.P. v.

Sonova United States Hearing Instruments, LLC (Del. 2025) 340 A.3d 1151,

1166.) Thus, the specific choice of law provision for arbitration applies here.

Moreover, unconscionability is not a canon of construction for

interpreting contracts; it is an “equitable matter” by which a contract is held

“unenforceable.” (Pinela v. Neiman Marcus Group, Inc. (2015) 238

Cal.App.4th 227, 240.) Unconscionability is not an investigation into what

contract terms mean but instead “‘is concerned with the relationship between

the contracting parties and one-sided terms.’” (Sanchez v. Valencia Holding

Co., LLC (2015) 61 Cal.4th 899, 943 (conc. & dis. opn. of Chin, J.).) California

codifies its unconscionability doctrine in the Civil Code title governing

unlawful contracts, not the title governing contract interpretation. (Compare

Civ. Code, div. 3, pt. 2, tit. 3 [“interpretation of contracts”] with id., tit. 4

[“unlawful contracts,” including § 1670.5 governing unconscionable

contracts].)

Under California law, “[c]ourts apply a sliding scale analysis

under which ‘the more substantively oppressive [a] term, the less evidence of

procedural unconscionability is required to come to the conclusion that the

term is unenforceable, and vice versa.’” (Ramirez v. Charter Communications,

Inc. (2024) 16 Cal.5th 478, 493 (Ramirez).) “Appellate review . . . is de novo if

the evidence is not in conflict and the ruling is based entirely on an

interpretation of law,” though “substantial evidence review applies to the

court’s factual findings.” (Ibid.)

“‘Procedural unconscionability turns on adhesiveness,’” which is

present here. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th

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638, 662.) “Some procedural unconscionability is present whenever an

agreement ‘is a contract of adhesion, i.e., a “standardized contract which,

imposed and drafted by the party of superior bargaining strength, relegates

to the subscribing party only the opportunity to adhere to the contract or

reject it.”’” (Fuentes v. Empire Nissan, Inc. (2026) 19 Cal.5th 93, 103.)

Adhesive contracts “contain a degree of procedural unconscionability even

without any notable surprises.” (Ramirez, supra, 16 Cal.5th at p. 494.) Here,

a plaintiff adequately attested to “take it or leave them agreements, imposed

as a condition of investment” with “no opportunity for bargaining or

negotiating the terms.”3 Defendants submitted no contrary evidence showing

any negotiation opportunities.

While adhesion is “‘sufficient to establish some degree of

procedural unconscionability,’” “[a] higher degree of procedural

unconscionability may be established through an additional showing of

oppression or surprise.” (Long Beach Unified School Dist. v. Margaret

Williams, LLC (2019) 43 Cal.App.5th 87, 103.) We agree with the court’s

express finding that the LLC Agreement’s arbitration clause is “improperly

buried” and “concealed” towards the end of the 46-page LLC Agreement. No

arbitration clause was contained in the related Subscription Agreement or

the Private Placement Memorandum. The “Summary of the LLC Agreement”

3

Though the trial court did not mention adhesion in its ruling,

defendants failed to request a statement of decision and so we apply “the

doctrine of implied findings and presume[] the trial court made all necessary

findings supported by substantial evidence.” (Carbajal v. CWPSC, Inc. (2016)

245 Cal.App.4th 227, 237 [doctrine applies to arbitration rulings].) Plaintiffs

did assert below the agreements were adhesive.

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in the Private Placement Memorandum did not mention arbitration. And the

LLC Agreement did not provide a signature line for the arbitration clause.4

Defendants’ assertion that plaintiffs are “sophisticated, well-

educated accredited investors” is misplaced. (Capitalization and boldface

omitted.) “‘The suggestion that a contract or clause cannot be unconscionable

if it is accepted by a knowledgeable party has been repudiated by our

Supreme Court.’” (Abramson, supra, 115 Cal.App.4th at pp. 662–663.)

The trial court also soundly found the arbitration agreement was

substantively unconscionable. (Ramirez, supra, 16 Cal.5th at p. 493.) If

anything, we find the arbitration agreement to have a higher degree of

substantive unconscionability than did the trial court.

A lack of mutual agreement to arbitrate is the “‘paramount

consideration.’” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th

1267, 1281.) The lack here is plain because the LLC Agreement explicitly

states that only members agree “to submit exclusively to binding arbitration.”

4

We are unpersuaded by defendants’ reliance on an older non-

arbitration case for the proposition that adhesion adds zero procedural

unconscionability when the plaintiff has market alternatives. While their

cited case stated adhesion showed “little or no procedural unconscionability,”

it did not stop there but proceeded to “turn [its] analysis to substantive

unconscionability.” (Morris v. Redwood Empire Bancorp (2005) 128

Cal.App.4th 1305, 1322.) Subsequent cases have “reject[ed] the contention

that the existence of market choice altogether negates the oppression aspect

of procedural unconscionability.” (Gatton v. T-Mobile USA, Inc. (2007) 152

Cal.App.4th 571, 583; accord Shroyer v. New Cingular Wireless Services, Inc.

(9th Cir. 2007) 498 F.3d 976, 985 [“Although there is clearly some

disagreement among the California Courts of Appeal over this issue

[citations], we have consistently followed the courts that reject the notion

that the existence of ‘marketplace alternatives’ bars a finding of procedural

unconscionability”].)

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There is no requirement of the LLC or its managers to submit their claims

against members to arbitration.

Defendants’ rely on Ramirez, supra, 16 Cal.5th at page 500, for

the proposition that even if mutuality is lacking, substantive

unconscionability requires an “absence of a justification for” the lack. They

contend, for the first time on appeal, that the lack here is justified because

“the company has no possible claims to assert against the members,” so a

“mutual arbitration obligation would be mere window dressing.” Ramirez

does not help them because, as here, the purported justification was forfeited.

(Ibid. [justification that claims excluded from arbitration “‘require[d] quick

action’” presented untimely]; Farrar v. Direct Commerce, Inc. (2017) 9

Cal.App.5th 1257, 1275–1276, fn. 3 (Farrar) [“Merely because an issue is one

of law, does not give a party license to raise it for the first time on appeal”].)

In any event, defendants’ justification is contradicted by the LLC Agreement,

which, for example, allows the LLC and its managers “to enforce the

requirements [of members] to make Capital Contributions.”

The LLC Agreement’s “‘forfeiture’” provisions—or “redemption”

clauses as defendants describe them—are also substantively unconscionable.

The forfeiture provisions put fearsome teeth into the one-sided arbitration

clause—members like plaintiffs who dare to assert claims in court are not

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just forced into arbitration but risk losing their membership interests as

well.5

Finally, the trial court permissibly declined to enforce the

arbitration agreement in Mordaunt’s separate contract with Crown Holdings.

Section 1281.2, subdivision (c) allows a court to deny an

arbitration motion if three conditions are satisfied: (1) “A party to the

arbitration agreement is also a party to a pending court action or special

proceeding with a third party,” (2) the action or proceeding “aris[es] out of the

same transaction or series of related transactions,” and (3) “there is a

possibility of conflicting rulings on a common issue of law or fact.” (Ibid.) “We

review an order denying arbitration pursuant to Code of Civil Procedure

section 1281.2, subdivision (c) for an abuse of discretion.” (Abaya v. Spanish

Ranch I, L.P. (2010) 189 Cal.App.4th 1490, 1496 (Abaya).)

Here, the first condition was satisfied because Mordaunt’s

coplaintiffs and Strathspey each qualified as a “third party” in “a pending

court action” in which Mordaunt was “also a party.” (§ 1281.2, subd. (c).)

The second condition was satisfied because Mordaunt’s separate

claims under the Crown Holding agreement “aris[e] out of the same

transaction or series of related transactions” as his coplaintiffs’ claims. (See

Abaya, supra, 189 Cal.App.4th at pp. 1498–1499 [analyzing pleadings to find

common issues and possibility of conflicting rulings].) Plaintiffs allege a

5

We reject defendants’ belated reply contention that the trial

court “contravened the FAA” by looking at contract terms outside the

purported agreement to arbitrate. (Farrar, supra, 9 Cal.App.5th at pp. 1275–

1276, fn. 3.) In any event, the contention would fail. “[T]he FAA does not

require trial courts to ignore unconscionable provisions outside an arbitration

agreement as a matter of federal substantive law.” (Wise v. Tesla Motors, Inc.

(2025) 117 Cal.App.5th 325, 336.)

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general theory of commingling involving both Strathspey and Crown

Holdings: “For twelve years, on information and belief, Grant and Malik

regularly awarded themselves lucrative compensation packages, more than

$500,000 a year for their work managing [Crown Holdings] and its parent

[Strathspey]. . . . They awarded themselves compensation from both [Crown

Holdings] and [Strathspey] for their work, and they repeatedly attempted to

conceal their compensation by transferring funds between [Crown Holdings]

and [Strathspey] and other controlled entities, mislabeling the payments as

‘fees’ or ‘other’ transfers.” Defendants do not dispute defendants Grant and

Malik controlled both defendants Strathspey and Crown Holdings, plaintiff

Mordaunt invested in both LLCs, and that the LLCs maintained a parent-

subsidiary relationship.

The third condition was satisfied because the possibility of

conflicting rulings was, as the trial court aptly put it, “obvious.” Plaintiffs

allege a single overarching theory of “theft of investor funds by managers

Robert Grant and Vikram Malik at Strathspey Crown Holdings, LLC and

Strathspey Crown, LLC.”

While defendants now contend the FAA preempts section 1281.2,

subdivision (c), they forfeited the issue by failing to raise it below. (See Nellie

Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 997

[“‘“Appellate courts are loath to reverse a judgment on grounds that the

opposing party did not have an opportunity to argue and the trial court did

not have an opportunity to consider”’”].) In any event, section 1281.2,

subdivision (c) “does not contravene the letter or the spirit of the FAA.”

(Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 393;

accord, Los Angeles Unified School Dist. v. Safety National Casualty Corp.

(2017) 13 Cal.App.5th 471, 485 [affirming denial of motion to compel

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arbitration].) And the Crown Holdings agreement does not even mention the

FAA. (Cf. Cronus, at p. 394 [“FAA’s procedural provisions” can be “expressly

designate[d]”].)

DISPOSITION

The order is affirmed. Plaintiffs shall recover their costs on

appeal.

SCOTT, J.

WE CONCUR:

DELANEY, ACTING P. J.

BANCROFT, J.*

*Judge of the Orange County Superior Court, assigned by the Chief Justice

pursuant to article VI, section 6 of the California Constitution.

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