Bloomberg News

Kleiner Loses Bid to Move Discrimination Suit to Arbitration

July 10, 2012

Kleiner Perkins Caufield & Byers lost its bid to move a lawsuit accusing the venture capital firm of sexual discrimination to arbitration.

California Judge Harold Kahn today rejected the firm’s argument that it had an agreement with Ellen Pao, a partner at the firm and an employee there since 2005, requiring the case to be resolved out of court. Yesterday, Kahn issued a tentative ruling rejecting Kleiner’s request, finding that no such agreement existed. Kahn made his final ruling today without prejudice, meaning that the firm can refile its request.

Pao sued the firm May 10 based on claims the firm treats female employees unfairly. Pao said she was denied promotion and suffered a loss of compensation and other employment benefits because of the firm’s actions.

Lynne Hermle, a lawyer representing Kleiner Perkins, said Pao claims she is owed “carried interest,” the profit from investments that is shared among partners, from various firm funds. Those funds are governed by “managing” limited liability corporations that have arbitration clauses, Hermle said.

‘Carried Interest’

“What she seeks is carried interest -- the very lucrative, sometimes, payouts that come from the managing LLCs,” and that money can “only be obtained from the managing LLCs,” Hermle said. Pao “can’t avoid her arbitration agreement by choosing to sue the wrong” entity, Hermle said. “She cannot obtain the carried interest which she specifically seeks without the contract that contains the arbitration clauses.”

Kahn said he disagreed with the argument on grounds that he understands Pao to be seeking “damages” from her employer, Kleiner Perkins.

“Ms. Pao is only suing one defendant, and there’s only one defendant I must look to to see if there’s an arbitration agreement,” he told Hermle. Over the objections of Pao’s lawyer, Alan Exelrod, Kahn told Hermle he’ll give Kleiner Perkins a chance to reformulate its arguments by July 13.

Kahn’s Willingness

Kleiner Perkins is “encouraged” by Kahn’s willingness to hear the arguments, the firm said in an e-mailed statement.

“KPCB continues to believe it has strong arguments and precedent to move the matter to arbitration,” the firm said. “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.”

John Doerr, the firm’s lead partner, said in a May 30 statement that the suit is “without merit,” based on the results of an independent investigation.

“We have taken great care to treat this situation seriously, swiftly and with integrity,” Doerr said in the statement. “The investigator’s report concluded that the allegations are without merit and that our firm does not discriminate on the basis of gender.”

The case is is Pao v. Kleiner Perkins Caufield & Byers LLC, CGC-12-520719, Superior Court of the State of California (San Francisco).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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