Viceroy Grp., LLC v. Tok, LLC

• Decision Date: 22 February 2021
• Docket Number: No. 80573-8-I,c/w 80710-2-I,80573-8-I
• Court: Washington Court of Appeals
• Parties: VICEROY GROUP, LLC, a Washington limited liability company, and JEFFREY WYSONG, an individual, Respondents, v. TOK, LLC, a Washington limited liability company, and SAMUEL BURKE, an individual, Appellants.

VICEROY GROUP, LLC, a Washington limited liability company,and JEFFREY WYSONG, an individual, Respondents, v. TOK, LLC, a Washington limited liability company,and SAMUEL BURKE, an individual, Appellants.

No. 80573-8-I

c/w 80710-2-I

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

February 22, 2021

UNPUBLISHED OPINION

SMITH, J. — This case arises from an arbitration dispute between the co-owners of a cannabis retail store. Samuel Burke was the sole owner of Tok LLC, an entity that was granted a cannabis retail license in Seattle. The Washington State Liquor Control Board (LCB) issued a decision approving Tok's request to allow Jeffrey Wysong's company, Viceroy Group LLC, to become a co-owner of Tok. After a dispute between Burke and Wysong, but before Viceroy became a co-owner of Tok, Burke appealed this decision to the LCB on behalf of Tok. Viceroy asked the arbitrator whom the parties had used to resolve their earlier dispute to intercede, and the arbitrator ordered Burke to withdraw his LCB appeal. Burke appealed the arbitration awards to the superior court. The superior court confirmed the arbitrator's awards, denied Burke's motion to vacate the awards, denied Burke's motion for reconsideration, and granted attorney fees to Viceroy. Burke appealed to this court, and Viceroy moved to disqualify Burke and Tok's counsel. Viceroy also requests attorney fees on appeal.

We deny Viceroy's motion to disqualify because it would not be equitable to disqualify counsel at this late stage. However, because Burke did not establish that the arbitrator exceeded their authority, either by deciding issues outside the scope of their jurisdiction or by committing an error of law, we affirm the trial court's orders confirming the arbitration awards and grant Viceroy attorney fees on appeal.

FACTS

In July 2014, after winning a spot in Seattle's lottery for the issuance of cannabis retail licenses, Burke formed Tok to operate a cannabis retail store. In 2015, Burke began negotiations with Wysong to sell a 50 percent interest in Tok contingent on the LCB approving Tok for a retail license. To acquire the interest in Tok, Wysong formed Viceroy Group with Wysong as its sole member.

Burke and Viceroy entered into two agreements: the Sale of LLC Interest and Option Agreement (Sale Agreement) and the Tok Operating Agreement (Operating Agreement). The Operating Agreement specified that Burke and Viceroy would be 50-50 owners of Tok and that Burke and Wysong would be the company's original managers. It gave managers the power to "[o]btain[ ] and maintain[ ] all necessary governmental permits and approvals," "[r]etain[ ] and coordinat[e] the services of all attorneys . . . as may be reasonably necessary or appropriate," and "[p]erform[ ] all other day-to-day business functions and exercis[e] all other administrative rights" to carry out Tok's business inaccordance with the agreement. However, it also required both managers to agree before retaining attorneys if the expected attorney fees were over $5,000 in a year and before doing "any act in contravention of" the Operating Agreement.

Both the Sale Agreement and the Operating Agreement were drafted by Wysong's attorney and contain identical arbitration clauses that provide:

All disputes concerning this Agreement shall be settled by binding arbitration, before one arbitrator . . . The arbitrator is authorized to grant injunctive relief and/or specific performance in addition to monetary relief. The arbitrator hereby is instructed to interpret and enforce this Agreement in strict accordance with its terms, and in accordance with Washington law.

The agreements also provided that following the issuance of an award from the arbitrator, the "unsuccessful party . . . shall pay to the successful party all costs and expenses, including, without limitation, reasonable attorneys' fees."

After entering into the agreements, Burke retained a lawyer who reviewed them. The lawyer informed Burke that the Sale Agreement violated Washington's cannabis regulations,¹ because it did not require Wysong to be vetted by the LCB before becoming an owner of Tok. Burke was concerned that violation of the regulations put Tok's eligibility for a cannabis retail license in jeopardy.

In November 2015, the LCB issued a license to Tok, enabling the company to open its retail store. However, the parties were still disputing the validity of the agreements. In February 2016, Burke submitted a demand forarbitration asking the arbitrator to rule on the validity and enforceability of the agreements. Burke and Wysong stipulated that the arbitrator "need not rule on the issue of whether or not Mr. Wysong can be vetted and approved by the LCB" and that the LCB could "make that determination on its own" if the arbitrator determined that the agreements were enforceable.

After a three-day hearing in June 2017, the arbitrator concluded that the agreements were valid and enforceable. The arbitrator noted the parties' stipulation "that the vetting and approval of Wysong and Viceroy LLC is not part of this arbitration and will be determined by what the [LCB] ultimately decides." The arbitrator determined that as prospective LLC members, Wysong and Viceroy were effectively partners of Burke and Tok and "therefore owe[d] each other fiduciary duties consistent with the terms of the LLC agreements once implemented." They ordered the parties to cooperate in good faith to submit an application to the LCB to approve Wysong and Viceroy as owners and to reasonably cooperate during the vetting process. Finally, they retained jurisdiction "to the extent necessary to complete the [dispute's] adjudication."

Burke submitted the change in ownership form in January 2018. However, Burke had learned information during discovery for the arbitration process that suggested Wysong had violated LCB regulations, and after the LCB began its investigation of Wysong and Viceroy, he provided this information to the LCB investigator. The information Burke provided led the investigator to determine that Wysong had previously violated Washington's cannabis regulations by misrepresenting his personal criminal history, finances, andownership interest in another company to LCB. Despite these determinations, on November 27, 2018, the LCB approved the application, which allowed Viceroy and Wysong to become co-owners of the cannabis business. Concerned by the effect that Wysong's misrepresentations could have on Tok's license, Burke, on behalf of Tok, appealed the LCB decision on December 12, 2018. On January 14, 2019, he submitted a request to the Office of Administrative Hearings (OAH) for a hearing to pursue the LCB appeal.

On January 17, 2019, unaware of Burke's appeal, Viceroy paid Burke the full amount owed and became a 50 percent owner of Tok. Burke's appeal proceeded and after several months, Viceroy discovered the appeal and moved to intervene in the proceedings before the Office of Administrative Hearings. Viceroy also asked the arbitrator to prohibit Tok from taking any further action in the appeal without Wysong's permission and to require Tok's counsel to withdraw, as well as to produce financial information about the counsel's work on the appeal.

In awards dated July 26 and 30, 2019, the arbitrator mostly granted Viceroy's requests, ordering Burke to immediately withdraw Tok's LCB appeal, authorizing Wysong to do so if Burke did not, and declaring the LCB appeal to be "voided." The arbitrator also ordered that Burke provide Viceroy with billing and payment records for legal services incurred during the appeal and make no further payments for legal services for the appeal. The arbitrator denied Viceroy's request to disqualify Burke's counsel, noting that if Viceroy wished to pursue this relief, "further briefing [was] required to establish [the] Arbitrator'sauthority to order such relief."

Viceroy filed a motion to clarify the July awards, which the arbitrator granted on September 20, 2019. The arbitrator wrote a letter, which was "not intended to amend the relief previously granted" and explained in more depth their reasoning for the award. Burke filed a motion in superior court to vacate the July 2019 awards and the September 2019 letter, which he characterized as a modification of the award. Viceroy, meanwhile, filed a motion to confirm the arbitration awards. The superior court confirmed the awards and denied Burke's motion. Burke filed a motion to reconsider, which the superior court denied. Burke appeals.

ANALYSIS

On appeal, Burke contends that the trial court erred in confirming the arbitrator's awards and denying the motions to vacate and to reconsider. Viceroy moves for the disqualification of Burke's attorney, asks us to affirm the trial court, and requests attorney fees. We deny Viceroy's motion for disqualification because Viceroy's delay in pursuing this relief would make disqualification at this stage inequitable. Furthermore, because Burke has not met his statutory burden to justify vacating the arbitration awards, we affirm the trial court and award Viceroy attorney fees on appeal.

Motion To Disqualify

Viceroy asks this court to disqualify Burke and Tok's counsel, Nathan Paine. Viceroy contends that Paine's actions in representing both Burke and Tok in this case and in the LCB appeal violate several of the Washington Rules ofProfessional Conduct.² Specifically, Viceroy alleges that Paine's representation of Tok is hindered by his representation of Burke, preventing Paine from meeting his duties to Viceroy as a 50 percent owner of Tok. While Viceroy raises legitimate issues concerning Paine's representation, because Viceroy did not pursue the issue during arbitration and did not raise it below, we deny the motion.

Under RAP 7.3, this court "has the authority to . . . perform all acts necessary or appropriate to secure the fair and orderly review of a case." This can include inquiring into violations of the Rules of Professional Conduct....