Coty and Kylie Jenner want the trade secret misappropriation and tortious interference lawsuit that Seed Beauty filed against them to be handled out of court and within the confines of confidential arbitration. Pointing to an arbitration clause in the agreement that Jenner entered into with beauty brand incubator Seed in 2016, just after she first launched her now-$1 billion-plus Kylie Cosmetics collection (via her Lip Kits range), Coty and Jenner – or better yet, Jenner’s corporate entity King Kylie, LLC – argue that the court should toss the case out in favor of arbitration.
Given that the contract that Jenner and Seed entered into in connection with Seed’s creation, manufacture, and sale of Kylie Cosmetics contains a provision that mandates that disputes arising in the course of their deal be handled by way of arbitration, if such a disagreement between Jenner and Seed comes about, the parties would generally be unable to pursue the case in court. There is a potential wrench in the works in terms of that otherwise straightforward arbitration mandate, however, as the legal dispute is not just between Jenner and Seed (i.e., the two parties to the contract). It also involves Coty, which acquired a majority stake in Jenner’s beauty brand in November 2019 and is named as a defendant.
Coty’s involvement is significant because unlike Seed and King Kylie, it is not party to the arbitration clause-containing contract. (The nature/terms of the contract, itself, are unclear since both Seed’s complaint and Coty’s motion are heavily redacted).
Given that Coty acquired its $600 million stake in Kylie Cosmetics years after Jenner first teamed up with Seed, Coty is not a signatory to the Kylie/Seed contract, which includes the arbitration agreement. But … that is not a problem, according to the motion to compel arbitration that Coty filed late last month on the heels of Jenner’s team filing a similar motion. In Coty’s filing, the beauty giant argues that it may not be “a party to the [agreement between Seed and King Kylie], but California law is clear that Seed’s claims against Coty in this action should, nonetheless, be compelled to arbitration pursuant to” the parties’ arbitration agreement because Seed’s “claims against Coty rely on or are intimately intertwined with [agreement between Seed and King Kylie].”
Citing California’s “equitable estoppel doctrine,” counsel for Coty argues that Seed’s case should be arbitrated (as opposed to being decided by way of a jury trial), as the law provides that a party to a contract containing an arbitration provision – King Kylie and Seed, here – is legally prevented from refusing to arbitrate a claim against a non-signatory to that contract – Coty – “when the claim against the non-signatory ‘derives from, relies on, or is intimately intertwined with the subject contract containing the arbitration agreement.’”
In short: Seed cannot refuse to arbitrate its trade secret misappropriation and intentional interference with contract claims against Coty because both of those claims are directly related to the aforementioned deal that Seed entered into with Jenner.
In addition to the contractual interference claim that Seed set out against Coty, which Coty says “relies on and refers to” the Kylie Cosmetics deal between Seed and King Kylie, Coty claims that Seed’s trade secret misappropriation claim is also inherently tied to that same deal, thereby, making it arbitrable, as well.
After all, as Seed asserted in its complaint, by acquiring Kylie Cosmetics in November 2019, Coty “induced King Kylie’s breach of its [non-disclosure obligations with Seed]” by getting King Kylie to share proprietary and confidential information that is essential to the working of Seed’s “unique business model.” In doing so, Coty “disrupted” King Kylie’s existing non-disclosure obligations to Seed as outlined in the contract at issue.
Pointing to an array of California state case law, Coty asserts that the equitable estoppel doctrine “applies equally to tort and contract claims brought against non-signatories,” such as itself, and that “as the case law makes clear that ‘claims of tortious interference with contract, as Seed alleges here against Coty, are particularly well suit for imposing equitable estoppel against the signatory: But for the contract containing the arbitration clause, there would be no breach and no claim for interference.”
Coty further claims that “California courts routinely apply the equitable estoppel doctrine to trade secret misappropriation claims against non-signatory defendants,” and thus, the court should apply the doctrine here to compel the case “in its entirety” to arbitration and stay this action pending resolution of the arbitration.
*The case is Seed Beauty LLC and Beta Beauty LLC, v. Coty, Inc., HFC Prestige Products, Inc., King Kylie, LLC, 20VECV00721 (Cal.Sup.).
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