ML Park Place Corp. v. Hedreen
| Decision Date | 29 November 1993 |
| Docket Number | Nos. 31063-1-,32360-1-I,s. 31063-1- |
| Citation | 862 P.2d 602,71 Wn.App. 727 |
| Parties | ML PARK PLACE CORPORATION and Merrill Lynch Life Insurance Company, Appellants, v. Richard C. HEDREEN and Elizabeth A. Hedreen, Respondents. In the Matter of the Arbitration Between MERRILL LYNCH LIFE INSURANCE COMPANY, Claimant, and Richard C. HEDREEN, Respondent. Division 1 |
| Court | Washington Court of Appeals |
Delbert Miller, Roger Lishman, Seattle, for appellants.
Ronald Leighton, James Seely, Tacoma, for respondents.
ML Park Place Corporation and Merrill Lynch Life Insurance Company 1 appeal from two orders in favor of Richard Hedreen. These orders were entered in the wake of the arbitration of a claim concerning the terms of the parties' joint venture agreement. ML Park Place does not here dispute the merits of the award in favor of Hedreen, but instead contends that the trial court should have vacated that portion of the award attributable to Hedreen's counterclaim on the ground that the arbitrators had no contractual authority over it. Additionally, ML Park Place appeals the trial court's refusal to vacate the judgment confirming the award, contending that the award was procured through Hedreen's bad faith representations to the arbitrators. Finding no merit in either of ML Park Place's arguments, we affirm.
In 1970, Hedreen and ML Park Place's predecessor, Family Life Building Co. (FLBC), entered into a written Joint Venture Agreement for the purpose of developing and owning the Park Place Building (hereinafter "the Building") in downtown Seattle. Simultaneously, the joint venture entered into a management agreement with Hedreen and an agreement with Family Life Insurance Company (FLIC), FLBC's parent company, pursuant to which FLIC agreed to enter into a lease upon completion of the Building. When the Building was completed in 1972, FLIC leased office space from the joint venture.
The joint venture endured and prospered despite several changes in the identity of the corporate venture partner. Then, in 1991, $21 million in joint venture obligations under two bank notes came due. Being unable to renew the notes or arrange alternative financing, Merrill Lynch Life Insurance Company (MLLIC), the then-current joint venture partner and fiscal administrator, initiated a capital call pursuant to the provisions of the Joint Venture Agreement in order to satisfy the note obligations.
Hedreen refused to pony up, insisting that the capital calls were wrongful and in violation of provisions of the Joint Venture Agreement. MLLIC satisfied the note obligations itself, and then, under the provisions of an arbitration clause in the Joint Venture Agreement, 2 commenced an arbitration against Hedreen to resolve the dispute. MLLIC, and subsequently its assignee, ML Park Place, sought to extinguish Hedreen's interest in the joint venture owing to the failure to make the capital contributions. ML Park Place also sought restitution of funds allegedly converted by Hedreen in his capacity as property manager, alleging that Hedreen had wrongfully made cash distributions in violation of his fiduciary duties and the joint venture agreement.
Hedreen interposed counterclaims against MLLIC, alleging that MLLIC had reneged on a promise to refinance the joint venture debt and that MLLIC had caused FLIC to breach its commitment to enter into an extended ten year lease on seven floors in the Building. In his response to MLLIC's demand for arbitration, Hedreen asserted that MLLIC's actions constituted "a violation of the Joint Venture Agreement and a breach of the fiduciary duty owed to its partner in this venture."
After the arbitration panel had been selected, ML Park Place requested that the panel consider the arbitrability of Hedreen's counterclaims at a preliminary hearing. According to ML Park Place, "[a] threshold matter for the panel to consider is whether, and if so to what extent, those issues are properly before the Panel." The panel concluded the counterclaims were arbitrable; in a letter written prior to the second preliminary hearing, ML Park Place again objected, stating:
[W]e renew the objection we raised at the December 4 Preliminary Hearing regarding the arbitrability of Hedreen's counterclaims.... MLLIC is being compelled to arbitrate Hedreen's counterclaims, and it does so under protest.
The arbitration proceeded. ML Park Place raised the question of the arbitrability of Hedreen's counterclaims with the arbitrators again, making reference to the issue in closing argument and in its "Post-Hearing Brief," where it argued that the counterclaims were not within the jurisdiction of the arbitration.
The award issued on May 7, 1992. The arbitrators denied all claims asserted by ML Park Place, and found that ML Park Place had committed breaches of the Joint Venture Agreement and had breached its fiduciary duties to Hedreen under the agreement. The panel assessed $7 million in damages against ML Park Place.
Hedreen moved in superior court to confirm the arbitration award, and ML Park Place petitioned to vacate, modify, or correct the award under the Washington Arbitration Act, RCW 7.04.180. ML Park Place argued that Hedreen's counterclaims were not within the scope of the parties' arbitration agreement, that the arbitrators had exceeded their powers and decided a claim that was not validly submitted to them, and that the award should therefore be modified to delete the damages award in favor of Hedreen.
The trial court denied ML Park Place's motion. Preliminarily, the court determined that the record did not establish a waiver of judicial review of arbitrability. Yet, "given the presumption in favor of arbitration, the very broad scope of the arbitration clause, and the necessary inference from the award itself as to its basis," the court concluded that ML Park Place had failed to establish that the issue was non-arbitrable. «Accordingly, the court confirmed the award and entered judgment on July 27, 1992. ML Park Place filed an appeal of that judgment in due course.
Meanwhile, on May 12, 1992, MLLIC had exercised its contractual option to purchase Hedreen's interest in the joint venture. Because the parties were unable to agree on the purchase price, they invoked the appraisal procedure provided for in the Joint Venture Agreement. 3
Shortly after the appraisal process was completed, ML Park Place moved to vacate the July 27 judgment under CR 60(b). ML Park Place contended that Hedreen and his expert witness, Katzenberger, had opportunistically and in bad faith changed their position on the value of the Building. According to ML Park Place, throughout the arbitration Hedreen and Katzenberger had represented to the panel that the value of the Building had diminished from $50 million to $29 million owing to the absence of the extended FLIC lease, while during the appraisal process they represented that the "as is" (i.e., without the FLIC lease) value was $47 million.
ML Park Place argued that at the arbitration Hedreen had misrepresented his position regarding the impact of the FLIC vacancy in order to obtain an inflated damage award. According to ML Park Place, Hedreen's "flip-flop" constituted newly discovered evidence demonstrating the arbitration award was procured by "undue means," which justified vacation of an arbitration award under the Washington Arbitration Act, RCW 7.04.160(1).
The trial court ultimately denied ML Park Place's motion to vacate. 4 In a letter ruling, the court explained that "[t]he 'flip-flop' ... is not, by itself, sufficient to raise substantial issues as to fraud or undue means." The court was convinced that many possible explanations for the change existed; thus, it concluded that "[a]n arbitration award should not be subject to challenge because different appraisals are offered later." Finally, the court ruled that the provisions of the Arbitration Act, RCW 7.04, rather than CR 60(b), apply to vacation of arbitration awards, and thus the motion to vacate was untimely under the 90-day limit in RCW 7.04.180. The court further noted that ML Park Place's argument regarding Hedreen's change in position had already been made at the hearing on the initial motion to vacate the arbitration award. 5
ML Park Place then appealed the order denying its motion to vacate. The two appeals were linked by this court for purposes of argument and disposition. Because it is appropriate to resolve both appeals in a single opinion, these cases are hereby consolidated under Cause No. 31063-1-I.
As a threshold matter, we decide whether ML Park Place waived judicial review of the arbitrability issue. Hedreen argues that by voluntarily and repeatedly asking the arbitration panel to rule on arbitrability, ML Park Place submitted the issue to arbitration and thereby waived its right to judicial review.
Hedreen relies on the sole Washington case to address this issue, W.A. Botting Plumbing & Heating Co. v. Constructors-Pamco, 47 Wash.App. 681, 736 P.2d 1100 (1987). In Botting, the appellant had contested the arbitrator's jurisdiction in a memorandum submitted after the completion of the arbitration hearing . After rejecting the merits of the appellant's arbitrability argument and affirming the trial court's confirmation of the award, this court offered the following observations in dicta:
We also note, but do not rely on it for this decision, that [appellant's] failure to raise the issue of arbitrability by a motion to stay arbitration, coupled with its submission of the arbitrability of the issue to the arbitrator, could be construed as a waiver of its rights to pursue the issue in the courts. A party that chooses arbitration as the arena within which to argue arbitrability should be precluded from subsequently raising the issue again in the courts....
(Citations omitted.) 47 Wash.App. at 685-86, 736 P.2d...
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