Why Kleiner Perkins might get its arbitration after all

Some members of the press might be preparing for a trial or big-dollar settlement in Ellen Pao’s sexual harassment case against venture capital firm Kleiner Perkins Caulfield & Byers, but her lawyers probably aren’t sleeping easy just yet. The general consensus after a ruling today by trial judge Harold Kahn is that Kleiner Perkins’ move to force arbitration is doomed, this despite Kahn allowing the parties to file briefs on two key issues that could actually sway the case in the firm’s favor.
Kleiner Perkins wants arbitration because it’s a more-private process (neither facts nor discovered documents will likely find their way into the public eye) and — assuming for the sake of argument that the firm is liable — likely will result in a smaller award for Pao than a jury trial likely will produce. Kleiner Perkins tried to compel arbitration based on agreements Pao had entered into with the various corporate entities that actually managed the funds on which she worked for the firm. Pao argued — among other things — that because she sued Kleiner Perkins and not the management entities, the arbitration clauses aren’t valid in this case.
By and large, Judge Kahn bought Pao’s argument but he did allow the parties until Friday to file briefs on the issues of third-party beneficiary and equitable estoppel that could save Kleiner Perkins’ case for arbitration. Essentially, the firm will argue (and did briefly in a motion available on the San Jose Mercury News‘ coverage of the decision) that because the agreements between Pao and the fund-management entities clearly conferred benefits to Kleiner Perkins, Kleiner Perkins can enforce the agreements’ terms — including the arbitration clauses — even though it wasn’t a party to the contracts.
Equitable estoppel means many things in the world of civil litigation, but in this case it means Kleiner Perkins needs to show that Pao’s claims are so intertwined with the contracts at issue that it’s only fair if the contracts are enforced. The firm’s argument is threefold: (1) that Pao’s claims are wholly dependent on the rights laid out in the agreements; (2) that there’s considerable overlap between the managing members of Kleiner Perkins and the managing members of the funds Pao worked on; and (3) that because Pao is seeking “carried interest” conferred to her as part of the agreements, she can’t pick and choose which terms apply in this case (i.e., money owed to her) and which don’t (i.e., the arbitration clauses).
Although neither affirmative defense (a legal term meaning essentially “even if everything the plaintiff said is true, we’re not liable”) is a slam dunk, that Judge Kahn allowed for a hearing on them suggests he thinks they have some merit. The parties’ briefs are due on Friday and will be heard in court on July 20. Here’s the official statement from Kleiner Perkins on today’s ruling:

KPCB is encouraged by Judge Kahn’s willingness to hear our arguments on third party beneficiary and equitable estoppel claims.  The firm will file its motions by July 13th to be heard in a supplementary hearing on July 20th.   KPCB continues to believe it has strong arguments and precedent to move the matter to arbitration.  Ms. Pao, like other partners, signed a variety of standard agreements requiring, among other things, that all disputes be resolved through arbitration.  We expect arbitration to be a more efficient and speedier dispute resolution process than trying a matter before a jury years down the line in the San Francisco Superior Court.