Hl 1 Llc v. Riverwalk Llc

Citation15 A.3d 725,2011 ME 29
Decision Date10 March 2011
Docket NumberDocket No. BCD–10–256.
PartiesHL 1, LLC, et al.v.RIVERWALK, LLC, et al.
CourtMaine Supreme Court


George J. Marcus, Esq., (orally), David C. Johnson, Esq., Marcus, Clegg & Mistretta, P.A., Portland, ME, for HL 1, LLC, Shipyard Brewing Company, LLC, and Fred M. Forsley.Paul F. Driscoll, Esq., David A. Goldman, Esq., Norman, Hanson & DeTroy, LLC, Portland, ME, Stephen H. Oleskey, Esq. (orally), Karen D. Stringer, Esq., Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, for Intercontinental Fund IV Ocean Gateway, LLC, Intercontinental Real Estate Investment Fund IV, LLC, and Intercontinental Real Estate Corporation.Seth W. Brewster, Esq., Verrill Dana, LLP, Portland, ME, for Pennbrook Properties II, LLC.Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.LEVY, J.

[¶ 1] In this appeal, we must decide whether the grounds for vacating an arbitration award enumerated in the Maine Uniform Arbitration Act are exclusive or whether parties can expand those grounds by agreement to provide for judicial review of arbitration awards on questions of law.

[¶ 2] HL 1, LLC, Shipyard Brewing Co., LLC, and Fred M. Forsley appeal from a judgment entered on the Business and Consumer Docket ( Nivison, J.) in favor of Riverwalk, LLC; Ocean Gateway Garage, LLC; OGG, LLC; Pennbrook Properties II, LLC; Intercontinental Fund IV Ocean Gateway, LLC; Intercontinental Real Estate Investment Fund; and Intercontinental Real Estate Corporation (collectively, Riverwalk Defendants), (1) confirming an arbitration award after denying judicial review of alleged errors of law made by the arbitration panel; (2) declaring, on summary judgment, that HL 1, Shipyard Brewing, and Forsley are collaterally estopped from relitigating factual issues that were resolved in arbitration; and (3) declaring, on summary judgment, that Shipyard Brewing lacks standing to seek judicial dissolution of Ocean Gateway Garage, LLC. We affirm the judgment.


[¶ 3] This dispute arises from complex business and financing arrangements related to a real estate development in Portland. Pursuant to an arbitration agreement that expressly provided that “each party shall retain his right to appeal any questions of law arising at the hearing,” the parties arbitrated issues regarding control of a business entity and the enforceability of a financing restructure agreement. After arbitration, HL 1, Shipyard Brewing, and Forsley sought review in the Business and Consumer Docket of legal conclusions made by the arbitration panel. The court ruled that the Maine Uniform Arbitration Act precluded judicial review of questions of law and confirmed the award. The court resolved other claims through motions to dismiss and for summary judgment. This appeal followed.

[¶ 4] The following detailed facts are either undisputed or established in the summary judgment record. Forsley is the sole owner and member of HL 1, LLC. He is also the president and manager of Shipyard Brewing Co., LLC, and owns an 80% interest in the company. In 2003, HL 1, LLC, together with Pennbrook Properties II, LLC, Downeast Holdings, LLC, and HP Longfellow, LLC,1 formed Riverwalk, LLC, to develop and construct a multi-use real estate development, including a parking garage and condominiums. The members of Riverwalk also formed two separate entities related to the parking garage. Ocean Gateway Garage, LLC, was created to own, construct, and manage the garage. OGG, LLC, was created to purchase the garage from Ocean Gateway Garage for $11 million pursuant to a purchase and sale agreement (Garage P & S).

[¶ 5] Riverwalk purchased land for the project from Shipyard Brewing in exchange for two $1 million promissory notes. Ocean Gateway Garage executed the first $1 million promissory note (Garage Note) in favor of Shipyard Brewing, payable upon the sale of the garage at the price of $11 million.

[¶ 6] Riverwalk also entered into a mezzanine loan agreement 2 with a group of Massachusetts entities (collectively, Intercontinental) 3 to borrow up to $19 million to fund construction of the development, including the garage. In connection with the mezzanine loan, Forsley provided a personal guaranty to cover up to $3 million of any shortfall if the actual sale price of the garage is less than $11 million. In November 2007, Intercontinental sent Riverwalk a notice of default pursuant to the mezzanine loan agreement because it considered the development's projected proceeds to be out of balance with its costs. Intercontinental then sent the Riverwalk members a proposed memorandum of understanding (MOU) outlining terms by which it would continue financing the development.

[¶ 7] After some negotiation, the parties signed an MOU in December 2007, and Intercontinental resumed funding for the garage. The terms of the MOU increased the sale price of the garage from $11 to $12 million and provided that Intercontinental and OGG would each own 50% of a joint venture that would replace OGG as the buyer of the garage. Although the MOU required Intercontinental and OGG to document the joint venture agreement, the arbitrators found that they were subsequently unable to reach agreement, and the documentation was never completed.

[¶ 8] Pursuant to the OGG Operating Agreement, the manager and members of OGG were required to “use their good faith, diligent and reasonable commercial efforts” to secure a “Guaranty Relief” substitute for the $4 million purchase price security provided for by Forsley's $3 million personal guaranty and Shipyard Brewing's $1 million Garage Note. If no Guaranty Relief was secured within fifteen months of the effective date of the Garage P & S, then Forsley was entitled to become the manager of OGG, and HL 1 was entitled to become the sole member of OGG. The Operating Agreement also provided that all disputes between the parties would be submitted to arbitration.

[¶ 9] In March 2008 (more than fifteen months after execution of the Garage P & S), HL 1, Shipyard Brewing, and Forsley sued the Riverwalk Defendants for a declaratory judgment stating that (1) the MOU is not binding or enforceable; (2) the original Garage P & S and Garage Note are binding and enforceable; and (3) Forsley is the sole manager and HL 1 is the sole member of OGG because no Guaranty Relief had been secured pursuant to the OGG Operating Agreement. Forsley, Shipyard Brewing, and HL 1 later amended their complaint to also seek (4) damages for default of the Garage Note; (5) judicial dissolution of Ocean Gateway Garage pursuant to 31 M.R.S. § 702(2) (2010); and (6) appointment of a liquidating trustee, pursuant to 31 M.R.S. § 703(1) (2010), to oversee the judicial dissolution of OGG.

[¶ 10] Pennbrook and Intercontinental moved to compel arbitration pursuant to section 11.01 of the OGG Operating Agreement:

11.01 Arbitration. All disputes and controversies between the parties hereto arising out of or in connection with this Agreement shall be submitted to arbitration pursuant to the following procedure. Either party may, by written notice to the other within thirty (30) days after the controversy has arisen hereunder, appoint an arbitrator who shall be either an attorney or accountant. The other party shall, by written notice, within fifteen (15) days after receipt of such notice by the first party, appoint a second arbitrator who shall also be an attorney or accountant, and in default of such second appointment the first arbitrator shall serve as the sole arbitrator. When two arbitrators have been appointed as hereinabove provided, they shall agree on a third arbitrator and shall appoint him by written notice signed by both of them and a copy mailed to each party hereto within fifteen (15) days after such appointment. On appointment of three arbitrators (or one arbitrator if there was no appointment of a second arbitrator) as hereinabove provided, such arbitrators shall hold an arbitration hearing within thirty (30) days after such appointment. At the hearing the three arbitrators shall allow each party to present his case, evidence, and witnesses, if any, in the presence of the other party, and shall render their award, including a provision for payment of costs and expenses of arbitration to be paid by one or both of the parties hereto, as the arbitrators deem just. The decision of the majority of the arbitrators shall be binding on the parties hereto ( although each party shall retain his right to appeal any questions of law arising at the hearing ), and judgment may be entered thereon in any court having jurisdiction.

(Emphasis added.) The OGG Operating Agreement also provided that it would be governed by Maine law and that unenforceable provisions were severable:

11.05 Application of Maine Law. This Operating Agreement, and the interpretation hereof, shall be governed exclusively by its terms and by the laws of the State of Maine, without reference to its choice of law provisions, and specifically the [Maine Limited Liability Company] Act.


11.11 Severability. If any provision of this Operating Agreement or the application thereof to any Person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Operating Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

In July 2008, the court granted the motion to compel arbitration. In its order, the court did not address that part of section 11.01 that reserved the parties' right to appeal questions of law arising at the arbitration hearing.

[¶ 11] In October 2008, following a three-day arbitration hearing, a panel of three arbitrators issued an award declaring that the “MOU is valid, effective, duly authorized and binding on the parties thereto” and that Forsley and HL 1 were not entitled to become the sole manager and sole member of OGG.

[¶ 12] In November 2008,...

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