Hotels Nevada v. L.A. Pac. Ctr., Inc.

• Citation: 2012 Daily Journal D.A.R. 1764,136 Cal.Rptr.3d 832,203 Cal.App.4th 336,12 Cal. Daily Op. Serv. 1687
• Decision Date: 17 February 2012
• Docket Number: No. B224456.,B224456.
• Court: California Court of Appeals
• Parties: HOTELS NEVADA et al., Plaintiffs and Appellants, v. L.A. PACIFIC CENTER, INC., Defendant and Respondent.

12 Cal. Daily Op. Serv. 1687

136 Cal.Rptr.3d 832

2012 Daily Journal D.A.R. 1764

203 Cal.App.4th 336

HOTELS NEVADA et al., Plaintiffs and Appellants,

v.L.A. PACIFIC CENTER, INC., Defendant and Respondent.

No. B224456.

Court of Appeal, Second District, Division 2, California.

Feb. 7, 2012.As Modified Feb. 17, 2012.

Ferguson Case Orr Paterson, Ventura, Wendy C. Lascher; Snell & Wilmer, Costa Mesa, Richard A. Derevan and Todd E. Lundell for Plaintiff and Appellant Louis Habash.

Howard Kim & Associates, Jacqueline A. Gilbert (pro hac vice); Booth, Mitchel & Strange, Los Angeles, and Christopher C. Lewi, for Plaintiffs and Appellants David B. Rosenberg, Chapter 7 Trustee, for the Bankruptcy Estates of Appellants Hotels Nevada, LLC and Inns Nevada, LLC.

Greenberg Traurig, Santa Monica, Scott D. Bertzyk and Karin L. Bohmholdt for Defendant and Respondent.DOI TODD, Acting P.J.

Following many years of litigation in both California and Nevada, the trial court confirmed an arbitration award in favor of defendant and respondent L.A. Pacific Center, Inc. (L.A. Pacific), including affirmative relief on its counterclaims. Plaintiff and appellant Louis Habash appeals from the judgment confirming the award against him and two companies for which he was determined to be the alter ego, Hotels Nevada, LLC and Inns Nevada, LLC (collectively Hotels Nevada). Currently in bankruptcy, Hotels Nevada dismissed its separate appeal.

We affirm. The trial court properly compelled arbitration, determined that the procedure by which the arbitration was conducted due to one arbitrator's unexpected surgery did not exceed the arbitrators' power, and confirmed the award, rejecting appellant's claims that the issue arbitrated was barred by the law of the case and that there was no basis for personal liability.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties and the Transaction.

The two limited liability companies that comprise Hotels Nevada are owned and controlled by appellant. In 2003, Hotels Nevada owned the Alexis Park Hotel and the Americana Inns Apartments in Las Vegas, Nevada (Property). At that time, appellant owed $4.5 million to HAR Inns, Nevada, an entity controlled through a limited liability company operated by his accountant and friend, Harvey Bookstein. Appellant also owed $500,000 to the State of Nevada for past due sales tax, $500,000 to his property manager and $1 million to general creditors.

L.A. Pacific, operated by Wen Shan Chang, is in the business of buying and selling real property. At the end of 2003, without knowledge of appellant's financial difficulties, L.A. Pacific began negotiating with Hotels Nevada for the purchase of the Property. By March 2004, the parties had settled on a purchase price of $70 million plus additional consideration of $5 million for Inns Nevada. Chang initially signed documents including a Purchase and Sale Agreement (Agreement) and Memorandum of Agreement (Memorandum) that provided for a 12–month holdback period for the $5 million, but instructed L.A. Pacific employee Eddy Chao that the holdback period must be extended to 60 months. Chao informed L.A. Pacific's principal negotiator, Richard Alter, of the required change.

During a March 24, 2004 meeting the following day, Alter discussed the 60–month holdback period with appellant. Appellant acceded to the 60–month holdback period and then signed the Agreement and Memorandum. The transaction closed in May 2004, and both pre-closing checklists and the Memorandum ultimately recorded at closing showed a 60–month holdback period. Within four months of closing, appellant and his counsel began compiling versions of the transaction documents and researching the possibility of bringing suit against L.A. Pacific. In April 2005, appellant sent Alter a letter indicating a May 2005 payment due date; Alter responded that the payment threshold had not been reached. Throughout the same time period, L.A. Pacific had applied for and received certain building and gaming entitlements that enhanced the value of the Property. Appellant was aware of L.A. Pacific's development progress.

Commencement of Litigation.

In May 2005, Hotels Nevada filed a complaint in California against L.A Pacific (California action) for rescission based on fraud, cancellation of written instruments based on illegality and conspiracy on the basis of allegations that L.A. Pacific had fraudulently manipulated the Memorandum and Agreement to provide for a 60–month holdback period to which Hotels Nevada had not agreed. ( Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 760, 50 Cal.Rptr.3d 700 ( Hotels Nevada ).) It simultaneously filed a notice of lis pendens. Hotels Nevada rejected L.A. Pacific's offer of a $5 million payment in exchange for removing the lis pendens.

In July 2005, L.A. Pacific moved to compel arbitration. ( Hotels Nevada, supra, 144 Cal.App.4th at p. 760, 50 Cal.Rptr.3d 700.) “It relied on section 14.01 of the Agreement, which provided in relevant part that ‘each claim, dispute or controversy of whatever nature, arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement or the transactions contemplated hereby, including, without limitation, any claim based on contract, tort, or statute, or the arbitrability of any claim hereunder ... shall be settled by final and binding arbitration conducted in Clark County, Nevada.’ It also relied on a related provision, section 14.02 of the Agreement, providing in part that ‘each signatory to this Agreement hereby waives its respective right to a jury trial of any permitted claim or cause of action arising out of this Agreement....’ ” ( Id. at p. 760, 50 Cal.Rptr.3d 700.) The trial court denied the motion on the ground that, in light of Hotels Nevada's allegations, L.A. Pacific failed to meet its burden to show the existence of a valid agreement to arbitrate, and the first appeal ensued. ( Id. at pp. 760–761, 50 Cal.Rptr.3d 700.) We reversed and remanded the matter, directing the trial court to hold an evidentiary hearing before ruling on the motion to compel. ( Id. at pp. 765–766, 50 Cal.Rptr.3d 700.) We concluded that because L.A. Pacific met its threshold burden to establish the existence of a valid agreement to arbitrate, Hotels Nevada was required to offer more than the allegations of its complaint to demonstrate that the agreement was unenforceable. ( Id. at pp. 764–765, 50 Cal.Rptr.3d 700.)

Meanwhile, L.A. Pacific continued with its development of the Property and in the fall of 2005 entered into an agreement with Molasky Pacific, LLC (Molasky agreement) to sell the Property for $235 million, contingent in part on L.A. Pacific's removing the lis pendens. In January 2006, the trial court granted L.A. Pacific's motion to expunge the lis pendens on the ground that adequate relief could be secured by the giving of an undertaking.¹ Thereafter, L.A. Pacific posted an undertaking in the amount of $5 million. It also filed a cross-complaint in California against Hotels Nevada and appellant individually, alleging causes of action for abuse of process, slander of title, intentional interference with contract and indemnity, and Hotels Nevada responded by filing a special motion to strike the cross-complaint pursuant to Code of Civil Procedure section 425.16. The trial court granted the motion with respect to all claims except indemnity, and we later affirmed the order in Hotels Nevada II.

Simultaneously with L.A. Pacific's posting an undertaking in the California action, Hotels Nevada filed a similar and separate action in Nevada (Nevada action), as well as a separate notice of lis pendens in Nevada; the Nevada court denied L.A. Pacific's motions to expunge. As a consequence, L.A. Pacific could not satisfy the lis pendens contingency in the Molasky agreement, and the buyer cancelled the $235 million sale. L.A. Pacific filed a separate counterclaim in Nevada, alleging that Hotels Nevada's filing of the lis pendens was an abuse of process designed to block L.A. Pacific's pending sale of the property. The Nevada district court initially denied L.A. Pacific's motion to compel arbitration of the Nevada claims, as well as its motion to dismiss or stay the Nevada action. L.A. Pacific appealed, and the Nevada Supreme Court reversed, finding that the evidence did not support the district court's order and that judicial economy would be served by staying the Nevada action pending resolution of the California action.

Order Compelling Arbitration.

In May 2007, Hotels Nevada dismissed its California complaint and asserted that the dismissal deprived the trial court of jurisdiction to proceed with L.A. Pacific's motion to compel arbitration.² The trial court disagreed, ruling that the pending motion to compel arbitration conferred jurisdiction on the court to resolve the issue of arbitrability.

Following a 16–day evidentiary hearing, the trial court determined that Hotels Nevada had failed to meet its burden to establish the defense of fraud in the execution and concluded that the matter should be arbitrated in accordance with the Agreement. The trial court acknowledged at the inception and throughout the hearing that the only issue to be resolved was whether Hotels Nevada could meet its burden to establish fraud in the execution as an affirmative defense to arbitration. Though it expressly made credibility findings, it determined those findings would not be entitled to preclusive effect and cautioned that another fact finder could reach a different conclusion. After outlining the evidence showing that the Agreement appellant had signed, in fact, contained a 12–month holdback provision, the trial court concluded: “Considering the totality of the evidence—including Driggs' [Hotels Nevada's transactional counsel] failure to object to the closing checklists, even after he noticed their provision for a 60–month outside payment date, and the uncontradicted testimony...