Bloomberg News

Kleiner Loses 2nd Bid to Arbitrate Partner’s Bias Claims

July 21, 2012

Kleiner Perkins Caufield & Byers, the U.S. venture capital firm that provided startup financing to Google Inc. (GOOG:US) and Amazon.com Inc., lost its second bid to force partner Ellen Pao to move her sex-discrimination claims to arbitration rather than proceed with a state lawsuit.

California Judge Harold Kahn in San Francisco said in a hearing yesterday that he didn’t agree with Kleiner’s position that Pao’s claims had to be sent to arbitration because they are connected to agreements for the limited liability companies that manage Kleiner’s investment funds, which contain arbitration clauses. No arbitration agreement existed between Pao and Kleiner, he had ruled on July 10.

“The complaint says the defendant discriminated and retaliated. The complaint doesn’t name any of the funds,” Kahn said. “In my view, given that these parties are very sophisticated, it is extremely odd to think that they would agree to arbitrate their employment disputes in such a tangential, circuitous” way.

Kleiner said it would appeal the judge’s decision “believing it has strong arguments and precedent to move the matter to arbitration.”

‘Standard Agreements’

“Ms. Pao, like other partners, signed a variety of standard agreements and it is these agreements with the managing LLCs that govern her claims and require, among other things, that disputes be resolved through arbitration,” Kleiner said in an e-mailed statement.

On July 10, Kahn rejected the firm’s argument that it had an agreement with Pao, an employee there since 2005, requiring the case to be resolved out of court. He allowed Kleiner to refile its request.

Pao sued the firm May 10 alleging Kleiner treated female employees unfairly by promoting and compensating them less than men. She said she was retaliated against after she complained about sexual harassment.

Pao said in her complaint that in 2006 she “succumbed” to the advances of a married Kleiner junior partner who had pressured her to have a sexual relationship. When she ended the relationship, the co-worker, who was later promoted to senior partner, retaliated against her over the next five years, she said in her lawsuit.

Board Positions

Male junior partners at Kleiner were allowed to add multiple board of director positions and investment sponsorships each year while female junior partners were limited to one, Pao alleged in her complaint. Female employees were allocated smaller shares of the firm’s profits from investment funds it manages than shares provided to males, Pao claimed.

John Doerr, Kleiner’s lead partner, said the lawsuit is “without merit,” based on the results of an independent investigation that found the firm doesn’t discriminate on the basis of gender. Kleiner took “great care to treat this situation seriously, swiftly and with integrity,” he said in a May 30 statement.

Kleiner’s attorneys argued in court filings that Pao must arbitrate her claims even in the absence of an arbitration agreement directly between her and the firm. Her claims are “inextricably intertwined” with agreements for the limited liability companies that manage investment funds that Pao claims she is owed money from, lawyers for Kleiner said in court filings. Those agreements contain arbitration clauses, they said.

‘Lucrative Contract’

The limited liability companies provide the benefits that Pao is seeking, Lynne Hermle, Kleiner’s attorney, told Kahn yesterday.

“The heart and soul of a discrimination and retaliation claim is who made the decisions and why they made them,” Hermle said. “How can equity allow a plaintiff to accept a lucrative contract, agree in the contract who is providing the benefits, agree who is not providing the benefits, agree to arbitration and then only sue an entity that doesn’t provide those benefits?”

Kleiner can’t be seen as a third-party beneficiary of the arbitration clause in the funds, Kahn said.

Alan Exelrod, Pao’s attorney, said he was pleased with the judge’s decision in an interview after the hearing.

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

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

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


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