Former Kaggle President can bypass arbitration to sue board members over 2017 Google purchase, appeals court rules

By Karen Kidd | Jan 2, 2019

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SAN FRANCISCO — Australian researcher and former Kaggle president Jeremy Howard is free to sue board members who he claims cheated him when the company was sold to Google in 2017, according to a recent state appeals court ruling.

In its 15-page opinion issued Dec. 21, a California First District Court of Appeal three-judge panel affirmed an earlier order issued by San Francisco City and County Superior Court denying a defense motion to force the dispute into arbitration. The appeals court found that arbitration clauses in employment agreements were not applicable in non-employment claims.

Defendants in the case, including Kaggle CEO Anthony Goldbloom and board members Benjamin Hamner, Ash Fontana and Curtis Feeny, had argued Howard's allegations stemmed from an employment relationship with Kaggle, in which he remains a minority shareholder. The appeals court disagreed, noting that Howard ceased working for Kaggle in August 2013.

"Howard's claim is instead rooted in, and any harm he suffered is measured by, his rights as a company stockholder," the opinion said. "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."

Appeals Court Justice Alison M. Tucher wrote the opinion in which Justice Jon B. Streeter and Judge Elizabeth Lee concurred. Judge Lee, who usually sits on the bench of San Mateo County Superior Court, was seated Pro Tem in the First District, Division Four.

Kaggle, an online community for data scientists and machine learners, was acquired in Google in March 2011 for almost $60 million in cash and "stay bonuses" to members of Kaggle management. Howard, a University of San Francisco researcher in residence who received $700,000 in the deal, later sued Goldbloom, Hamner, Fontana, Feeny and three limited partnerships for allegedly acting in bad faith in financial arrangements that diluted the value of Kaggle shares.

Defendants pointed to the "At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement" (CIIAA) that Howard entered into in 2011 and claimed its broader arbitration agreement should be enough to force the dispute into arbitration. The appeals court disagreed, saying in its opinion that the dispute "is not rooted in the at-will nature of his [Howard's] employment relationship, the company's confidential information, Howard’s inventions, or any obligations" that were 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,'" the opinion continued. "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."

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