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Date: 12-24-2018

Case Style: Jeremy Howard v. Anthony Goldbloom

Case Number: A154298

Judge: Tucher

Court: California Court of Appeals First Appellate District, Division Four on appeal from the Superior Court, City and County of San Francisco

Plaintiff's Attorney: Timothy A. Miller, Thomas Drew Haley and Jeffrey T. Makoff

Defendant's Attorney: Ignacio Evaristo Salceda, David Andrew McCarthy, Jonathan Alan Patchen and Daniel Patrick Martin


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In this action, plaintiff Jeremy Howard alleges that Kaggle’s chief executive
officer (CEO), Anthony Goldbloom, three other members of its board of directors
(Benjamin Hamner, Ash Fontana, and Curtis Feeny), and three limited partnerships (Zetta
Venture Partners I, L.P., Voyager Capital Fund IV, L.P., and Voyager Capital Founders’
Fund IV, L.P. (the VC defendants)) abused their corporate power and breached their
fiduciary duty to him by wrongfully diluting his interest in Kaggle’s stock, transferring its
value to themselves through a self-dealing transaction.
A. Allegations of the Complaint
Goldbloom formed an Australian company, Kaggle Pty Ltd, in 2010. In 2011, he
recruited Howard to invest in the Australian company and join as an employee. Howard
accepted, and he invested $100,000 Australian dollars for a 10 percent share in the
company. Goldbloom decided to move the company to California, and in 2011, he and
Howard formed Kaggle, Inc., a Delaware company.
Howard rewrote Kaggle’s software platform, developed a business plan and
financial model, and prepared a presentation for potential investors. The company raised
$11.25 million from a group of venture capitalists (referred to in the complaint as the
“Original VCs”). In recognition of Howard’s contributions, Kaggle’s board of directors
approved the issuance of nearly half of the outstanding Kaggle common stock to Howard,
with Goldbloom retaining a slight majority position. Goldbloom served as Kaggle’s
CEO, and Howard was the company’s president and chief scientist.
The company suffered business setbacks under Goldbloom’s leadership, and the
Original VC’s told Goldbloom in June 2013 that they wanted him to step down as CEO.
Goldbloom persuaded the company’s board of directors to terminate Howard’s
employment instead, and Howard ceased working for Kaggle in August 2013.
The company’s financial troubles increased, and by February 2015, it was “on the
brink of collapse.” In debt and almost out of money, the company needed fresh capital.
Defendants devised a scheme in 2015 by which Kaggle increased its issued and
outstanding stock tenfold, thus diluting the value of the existing common stock, without
compensation to the minority shareholders. Defendants used the newly issued shares to
pay off the Original VC’s, and divided the remainder among themselves. They caused
Kaggle to increase the stock option pool available to management from 8.14 percent to
37.26 percent of Kaggle stock, in order to mitigate the effects of the common stock
Defendants arranged a merger with Google in 2017. Goldbloom told an investor,
Nicholas Gruen, that Google would pay $60,000,000 for Kaggle, and that Google had
been chosen from two other potential suitors, including Amazon. Gruen said the price

1 With his opposition to the petition to compel arbitration, plaintiff submitted
evidence that he suggests shows Goldbloom and other members of Kaggle’s management
acted in bad faith in arranging the financing in a manner that diluted the value of the
company’s shares.
seemed low in light of the other companies’ interest, and Goldbloom agreed Kaggle
could probably get more but said he wanted the deal. The final terms of the merger deal
provided that Google paid approximately $47,900,000, plus an additional $10,000,000 in
“stay bonuses” to members of management. Goldbloom and Hamner received “stay
bonuses” of $3,000,000 each, and “closing bonuses” equal to half the value of the stock
options they had recently received as if the merger had accelerated the vesting of those
options. Plaintiff alleged the stay bonuses and closing bonuses were a “blatant diversion
of merger consideration from the minority shareholders.” Howard’s share of the merger
proceeds was a little more than $700,000.
Based on these allegations, Howard and Gruen pled causes of action for breach of
fiduciary duty against Goldbloom, Hamner, Fontana, and Feeney; and aiding and abetting
breach of fiduciary duty, unjust enrichment, and constructive trust against all defendants.
Gruen later dismissed his claims with prejudice.
B. Petition to Compel Arbitration
Defendants petitioned to compel arbitration of the claims asserted in the complaint
and to stay proceedings in this action on the ground that Howard had signed four separate
agreements in which he consented to arbitrate disputes related to Kaggle. Three of the
agreements were signed in October 2011, when Howard became employed by Kaggle,
and the fourth was a separation agreement executed in October 2013, after Howard’s
employment ended.
The trial court denied the petition, concluding that the arbitration clauses in the
four agreements “go to the terms and interpretation of those agreements and matters
released by them. Those employment-related agreements preceded by years the issues
pled in the complaint, which do not regard Howard’s employment.” This timely appeal
A. Legal Principles
“ ‘California has a strong public policy in favor of arbitration and any doubts
regarding the arbitrability of a dispute are resolved in favor of arbitration.’ [Citation.] It
is the party opposing arbitration who bears the burden to show the arbitration provision
cannot be interpreted to cover the claims in the complaint. [Citations.] There is no
public policy, however, that favors the arbitration of disputes the parties did not agree to
arbitrate.” (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890 (Aanderud).)
Thus, “no dispute may be ordered to arbitration unless it is within the scope of the
arbitration agreement.” (Titolo v. Cano (2007) 157 Cal.App.4th 310, 317.)
“ ‘[T]he decision as to whether a contractual arbitration clause covers a particular
dispute rests substantially on whether the clause in question is “broad” or “narrow.” ’
[Citation.] ‘A “broad” clause includes those using language such as “any claim arising
from or related to this agreement.” ’ [citation] or ‘ “arising in connection with” the
agreement’ [citation]. ‘It has long been the rule in California that a broadly worded
arbitration clause . . . may extend to tort claims that may arise under or from the
contractual relationship. “There is no requirement that the cause of action arising out of a
contractual dispute must be itself contractual. At most, the requirement is that the dispute
must arise out of the contract.” ’ ” (Rice v. Downs (2016) 248 Cal.App.4th 175, 186
(Rice); accord Coast Plaza Doctors Hospital v. Blue Cross of California (2000)
83 Cal.App.4th 677, 684-686 [arbitration required where hospital’s complaint was based
on insurer’s refusal to renegotiate reimbursement rates provided for in contract].) Put
another way, “[f]or a party’s claims to come within the scope of such a clause, the factual
allegations of the complaint ‘need only “touch matters” covered by the contract
containing the arbitration clause.’ ” (Ramos v. Superior Court (2018)
28 Cal.App.5th 1042, 1052.) Broad arbitration clauses are interpreted to apply to
extracontractual disputes between the contracting parties, “ ‘so long as they have their
roots in the relationship between the parties which was created by the contract.’ ”
(Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 660 (Khalatian),
quoting Berman v. Dean Witter & Co., Inc. (1975) 44 Cal.App.3d 999, 1003.)
In deciding whether a dispute has its roots in the relationship created by the contract, we
“examine[] the nature of the agreement and of the claims and their relationship to one
another . . .” (Rice, at p. 188.)
In contrast, narrow clauses requiring arbitration of claims “ ‘arising from’ or
‘arising out of’ an agreement, i.e., excluding language such as ‘relating to this agreement’
or ‘in connection with this agreement,’ are ‘generally considered to be more limited in
scope’ ” (Rice, supra, 248 Cal.App.4th at p. 186), and “have generally been interpreted to
apply only to disputes regarding the interpretation and performance of the agreement.”
(Ramos, supra, 28 Cal.5th at p. 1052.)
We apply ordinary state-law contract principles when we determine whether the
parties agreed to arbitrate a dispute, construing the arbitration agreement to give effect to
the intention of the parties. (Aanderud, supra, 13 Cal.5th at p. 890.) Because there is no
conflicting evidence, we review the trial court’s determination de novo. (Ibid.)
B. The Arbitration Provisions
With these principles in mind, we examine the terms of the four agreements and
consider whether they apply to this dispute.
1. 2011 Employment Agreement
In 2011, Howard entered into an employment agreement with Kaggle. The
agreement included terms regarding the scope of his employment, his compensation, and
the termination of his employment. It included the following arbitration clause: “In
consideration of [Howard’s] employment with the Company, the Company’s promise to
arbitrate all employment-related disputes, and [Howard’s] receipt of the compensation,
pay raises, and other benefits paid to [Howard] by the Company, at present and in the
future, [Howard] agrees that any and all controversies, claims or disputes with anyone
(including the Company and any employee, officer, director, shareholder or benefit plan
of the Company, in their capacity as such or otherwise), arising out of, relating to, or
resulting from [Howard’s] employment with the Company or the termination of
[Howard’s] employment with the Company, including any breach of this agreement, shall
be subject to binding arbitration . . .”2
2. 2011 CIIAA

This clause and the arbitration clauses in the other three agreements, as well as
the titles of the agreements, were printed in all capital letters. We omit the capitalization.
Howard entered into an “At-Will Employment, Confidential Information,
Invention Assignment, and Arbitration Agreement” (the CIIAA) in 2011. In the CIIAA,
he acknowledged that his employment was at-will, agreed to keep certain information
confidential, and assigned to Kaggle the rights to his inventions. This agreement
contained an arbitration clause that was almost identical to that in the 2011 employment
agreement, requiring arbitration of “any and all controversies, claims or disputes with
anyone . . . arising out of, relating to, or resulting from my employment with the
company or the termination of my employment, including any breach of this
agreement . . .”
3. 2011 Common Stock Repurchase Agreement
In 2011, Howard also entered into a “Common Stock Repurchase Agreement”
(stock agreement). The stock agreement recited that Howard was the beneficial owner of
4,452,055 shares of Kaggle’s common stock and that, at the behest of purchasers of some
of the Company’s preferred stock, Howard would enter into an agreement allowing the
Company to repurchase some of his shares under certain conditions. Under the stock
agreement, the Company had an option to repurchase 3,339,041 of Howard’s shares in
the company (the “restricted shares”) at a fixed price if he ceased working for the
Company, but each month after the agreement went into effect that he worked for the
Company, one thirty-sixth of the restricted shares would be released from the repurchase
option. The stock agreement also provided that, with certain exceptions, Howard could
not transfer the restricted shares until they were released from the repurchase option. The
restricted shares were to be held in escrow until the expiration of the Company’s option
to purchase the restricted shares. While they were held in escrow, Howard retained the
rights to vote the shares or receive cash dividends or distributions declared on them. The
stock agreement contained an arbitration clause providing: “Any and all controversies,
claims, or disputes arising out of, relating to, or resulting from this Agreement shall be
subject to the arbitration provisions set forth in the Employment Agreement.”
4. 2013 Separation Agreement and Release
After Howard’s employment was terminated in 2013, he signed a “Separation
Agreement and Release” (the separation agreement). The agreement recited that the
parties wished to resolve “any and all disputes, claims, complaints, grievances, charges,
actions, petitions, and demands that [Howard] may have against the Company and any of
the Company Releasees as defined below, including, but not limited to, any and all
claims arising out of or in any way related to [Howard’s] employment with or separation
from the Company.” As “Consideration,” Kaggle agreed to continue paying Howard’s
base salary and health benefits for four months, and accelerated the vesting date of some
of the restricted shares that had not yet been released under the stock agreement. The
parties also agreed on how to determine the number of shares in which he was entitled to
be vested. Howard agreed to release Kaggle from all claims “relating to any matters of
any kind, whether presently known or unknown, suspected or unsuspected, that [Howard]
may possess against any of the Company Releasees arising from any omissions, acts,
facts, or damages that have occurred up until and including the Effective Date of this
Agreement, including, without limitation: [¶] a. any and all claims relating to or arising
from [Howard’s] employment relationship with the Company and the termination of that
relationship; [¶] b. any and all claims relating to, or arising from, [Howard’s] right to
purchase, or actual purchase of shares of stock of the Company, including, without
limitation, any rights under an Equity Arrangement dated October 25, 2011 between
[Howard] and Anthony Goldbloom, claims for fraud, misrepresentation, breach of
fiduciary duty, breach of duty under any applicable state corporate law, and securities
fraud under any state or federal law . . .” (Italics added.)
The separation agreement included an arbitration clause, under which the parties
agreed “that any and all disputes arising out of the terms of this agreement, their
interpretation, and any of the matters herein released, shall be subject to arbitration . . .”
It also included an integration clause providing: “With the exception of the
CIIAA and the Stock Agreements, this Agreement represents the entire agreement and
understanding between the Company and [Howard] concerning the subject matter of this
Agreement and [Howard’s] employment with and separation from the Company and the
events leading thereto and associated therewith, and supersedes and replaces any and all
prior agreements and understandings concerning the subject matter of this Agreement and
[Howard’s] relationship with the Company including the Employment Agreement.”
C. The Dispute Does Not Fall Within the Arbitration Agreements
We may quickly narrow the scope of the issues before us. Two of the arbitration
clauses are clearly inapplicable to this dispute. The 2011 employment agreement is no
longer operative: the 2013 separation agreement expressly “supersedes and replaces . . .
the Employment Agreement” executed in 2011. And the separation agreement’s
arbitration provision is relatively narrow; it requires arbitration only of disputes “arising
out of the terms of this agreement, their interpretation, and any of the matters herein
released.” (See Rice, supra, 248 Cal.App.4th at p. 186.) None of Howard’s claims arise
from the terms or interpretation of the separation agreement. And the only matters
released in the separation agreement are those “that have occurred up until and including
the Effective Date of this agreement.” The wrongs Howard alleges took place in 2015,
well after the October 9, 2013 effective date of the separation agreement.
The arbitration clauses in the stock agreement and the CIIAA are broader. 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.’ ” (Khalatian, supra, 237 Cal.App.4th at p. 660; Rice, supra,
248 Cal.App.4th at p. 188.)
Defendants contend Howard’s claims are rooted in his employment relationship
with Kaggle because he possesses the majority of his shares as a result of his employment
with, and separation from, the company. That is, he received many of the shares as
compensation, and his right to retain possession of some of them was “[a]ccelerat[ed]” by
the separation agreement. Defendants draw our attention to several cases that they argue
support their position.
The plaintiff in EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311,
1315, alleged it agreed to invest in a company in reliance on representations made by its
officers, directors, and employees. The parties entered into a contract setting out the
terms of their working relationship, under which the plaintiff would provide capital and
services in return for an equity interest in the company. (Ibid.) The contract included an
arbitration clause covering “ ‘[a]ny dispute or other disagreement arising from or out
of’ ” the agreement. (Id. at p. 1317.) The following year, defendants diverted the
company’s primary asset, a software program, to their own use. (Id. at pp. 1315-1316.)
The plaintiff brought an action alleging defendants fraudulently induced him to invest in
the company, breached their fiduciary duties, interfered with the contract between
plaintiff and the company, and converted the company’s property. (Id. at pp. 1314,
1317.) The appellate court concluded the matter was subject to the arbitration clause: the
contract established and governed the plaintiff’s relationship with the company, and
plaintiff alleged defendants fraudulently and negligently induced it to enter into the
agreement. (Id. at p. 1325.) The breach of fiduciary duty causes of action also hinged on
the contract, which was the vehicle for investment in the company. And the cause of
action for interference with contractual relations was based on contractual rights and
obligations that existed because of the contract. (Id. at p. 1325.) Thus, all the disputes
depended on the contract: plaintiff would not have entered into it but for defendants’
fraudulent inducement and deceit, and the disputes would not have arisen if plaintiff had
not entered into the contract with the company. (Id. at p. 1326.) But the contract was
more than the but-for cause of the dispute. It was the vehicle that created and embodied
the obligations that were the subject of the action, which, as we shall see, is a dispositive
difference from the contracts in this case.
Other cases defendants cite apply similar reasoning in the context of employment
contracts. An employment agreement in Vianna v. Doctors’ Management Co. (1994)
27 Cal.App.4th 1186, 1188 (Vianna) required arbitration of “ ‘any dispute of any kind
whatsoever, regarding the meaning, interpretation or enforcement of the provisions of
this Agreement.’ ” The plaintiff was forced to resign after being accused of making
sexual advances to another employee’s husband. (Id. at p. 1188.) He brought an action
for termination in violation of public policy, breach of the implied covenant of good faith
and fair dealing, negligent infliction of emotional distress, and defamation based on
events surrounding the termination of his employment. (Ibid.) This division concluded
his claims were subject to the arbitration clause because they were all “rooted in the
employment relationship created by their contract.” (Id. at pp. 1188-1190.) The claim
for breach of the covenant of good faith and fair dealing “plainly” concerned
“ ‘enforcement’ ” of the contract, and the other claims all involved duties that were
allegedly breached during the employment relationship. (Id. at pp. 1189-1190.) Here, on
the other hand, Howard is not seeking to enforce any contractual provision, the breaches
he alleges occurred well after his employment ended, and the wrongs he alleges have
nothing to do with his former employment relationship. Indeed, one of the plaintiffs
when this action was originally filed was Gruen, who also owned a minority interest in
Kaggle but had apparently never worked as an employee of the Delaware corporation.
Following Vianna, the court in Buckhorn v. St. Jude Heritage Medical Group
(2004) 121 Cal.App.4th 1401, 1406-1408, concluded an arbitration clause in an
employment agreement covered claims for wrongful termination, defamation, and
interference with prospective business advantage, even though some of the alleged
wrongs took place after the termination. The plaintiff, a physician, was terminated from
his employment with a medical group. Subsequently, the medical group informed his
patients he was no longer with the group and offered to direct them to other physicians in
the group. It also told them he had left the group “because of marital programs, mental
problems, [or] loss of his insurance coverage, and that he was no longer practicing
medicine, or that he had ‘ “ just disappeared.” ’ ” (Id. at p. 1405.) The appellate court
rejected the plaintiff’s argument that the arbitration provisions were inapplicable because
his tort claims arose after the end of his employment, stating, “Buckhorn’s temporal test
misconstrues the applicable standard. The issue turns on whether the tort claims are
‘rooted’ in the contractual relationship between the parties, not when they occurred.” (Id.
at p. 1407.) And his claims were so rooted: they were based on his expectation of future
income from his patients, who had consulted him in his capacity as an employee of the
defendant medical group. Thus, the employment agreement “would inform the extent of
any economic interest” of Buckhorn’s with which the medical group might have
interfered. (Id. at pp. 1407-1408.) “Because [the physician] failed to demonstrate his tort
claims were ‘wholly independent’ of the employment agreement,” the court concluded
his claims must be submitted to arbitration. (Id. at p. 1408.)
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. Unlike
the plaintiff’s economic interests in Buckhorn, the harm Howard suffered is not measured
by or dependent on the terms of his employment.
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. (See Angelica Textile Services,
Inc. v. Park (2013) 220 Cal.App.4th 495, 509 [corporate officers and directors stand in
fiduciary relation to corporation and stockholders]; Gantler v. Stephens (Del. 2009)
965 A.2d 695, 698, 708-709 [same]; Nasrawi v. Buck Consultants LLC (2014)
231 Cal.App.4th 328, 343 [elements of aiding and abetting breach of fiduciary duty];
RBC Capital Mkts., LLC v. Jervis (Del. 2015) 129 A.3d 816, 861 [same].) Any minority
shareholder, whether or not the person had ever been employed at Kaggle, could bring
the same claims.
Defendants lean heavily on the fact that Howard received much of his company
stock as compensation for his employment with, and separation from, the company. But
Howard’s former employment status, and the circumstances under which he received his
shares or gained the right to retain them, do not affect defendants’ independent
obligations not to breach their fiduciary duties to him or to aid and abet such a breach.
Defendants would have owed Howard the same duty if he had acquired the stock in a
completely different manner, for example by purchasing it from a third party, or if the
only shares he owned were those he acquired before he began working for the Company.
Defendants do not dispute that Howard was a minority shareholder of Kaggle before he
became an employee; that is, the obligations allegedly breached pre-exist Howard’s
employment relationship. And if Howard were to transfer some of his shares to a third
party who had never signed an arbitration agreement—as the stock agreement explicitly
contemplates—the Company’s fiduciary duties to those minority shareholders would
surely exist to the same extent and in the same manner as those duties extend to Howard.
Moreover, defendants’ argument—that the dispute is arbitrable because Howard
received some of the stock as compensation—proves too much. As an illustration, an
employee might receive a salary and put the money into an investment account before
leaving his employment. If his former employer fraudulently gained access to his
account two years later and looted it, no reasonable person would argue that an action to
recover that money was one rooted in the employment relationship simply because the
money in the account came from the employee’s salary. The fact that the compensation
at issue here was stock rather than cash strikes us as a distinction without a difference.
Howard does not contend the shares were defective in any way when he received them;
rather, he claims defendants later diluted their value.
This conclusion is bolstered by the limited scope of the stock agreement and the
CIIAA. The stock agreement provided for the sale of Howard’s restricted shares to the
company in the event he ceased working for it, and gradually gave him the right to retain
his ownership in the shares he already owned. Its arbitration clause contemplated
arbitration of disputes “arising out of, relating to, or resulting from this agreement.”
(Italics added.) There is no plausible argument that the present dispute is rooted in a
relationship created by the stock agreement or that the dispute arose out of his agreement
that the Company could repurchase some of his shares if he left its service within 36
months. (See Rice, supra, 248 Cal.App.4th at pp. 186, 188.) Nor is this a dispute about
whether the number of shares Howard received, at the time they were originally issued to
him, had been improperly calculated, which is exactly the kind of claim Howard released
away in 2013.
The CIIAA has a broader reach, but not an unlimited one. It recited that Howard’s
employment was at-will and could be terminated at any time, obligated him to keep
company information confidential, and assigned his inventions to the company. The
current 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. It is true that the CIIAA’s arbitration clause is worded broadly, reciting that
the parties would arbitrate all disputes “arising out of, relating to, or resulting from
[Howard’s] employment with the company or the termination of [his] employment with
the company.” But as we have already explained, this dispute is based on obligations
owed to minority shareholders in the company, obligations that are independent of
Howard’s employment relationship and hence not subject to arbitration even under a
broad understanding of the CIIAA’s arbitration clause.
Because we reach this conclusion, we need not consider Howard’s alternate
contention that the VC defendants, Fontana, and Feeny lack standing to compel
arbitration because they are non-signatories to the arbitration agreements.

Outcome: The order denying the petition to compel arbitration is affirmed.

Plaintiff's Experts:

Defendant's Experts:


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