Vva-Two, LLC v. Impact Dev. Grp., LLC

• Decision Date: 12 May 2020
• Docket Number: B291330
• Citation: 48 Cal.App.5th 985,262 Cal.Rptr.3d 507
• Parties: VVA-TWO, LLC, Plaintiff and Appellant, v. IMPACT DEVELOPMENT GROUP, LLC, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

48 Cal.App.5th 985

262 Cal.Rptr.3d 507

VVA-TWO, LLC, Plaintiff and Appellant,

v.IMPACT DEVELOPMENT GROUP, LLC, Defendant and Respondent.

B291330

Court of Appeal, Second District, Division 1, California.

Filed May 12, 2020

Certified for Partial Publication.^*

Glaser Weil Fink Howard Avchen & Shapiro, Michael Cypers, Los Angeles; Greines, Martin, Stein & Richland, San Francisco, Robin Meadow and Jeffrey E. Raskin, Los Angeles, for Plaintiff and Appellant.

Shaw Koepke & Satter and Jens B. Koepke for Defendant and Respondent.

ROTHSCHILD, P. J.

Efficiency, finality, and restricted appellate review are the hallmarks of arbitration under California law, and thus often the impetus for parties to enter into an arbitration agreement. Absent party agreement providing otherwise, the Code of Civil Procedure reflects those goals by limiting the bases for vacatur of an arbitration award to a short list of situations in which the award reflects not legal or factual error, but some flaw in the arbitral proceedings or award rendering them fundamentally unfair or unauthorized. (See Code Civ. Proc.,¹ § 1286.2 ; see also § 1283.4.) We disagree with appellant VVA-TWO, LLC (VVA) that the award underlying this appeal presents any such basis for vacatur.

VVA appeals from a judgment resulting from the court's confirmation of an arbitration award in favor of Impact Development Group, LLC (IDG) regarding a contractual dispute between the parties. VVA presents three arguments for vacatur, none of which we find persuasive. In considering these arguments, we are guided by the general policy in favor of arbitration and, more specifically, in favor of interpreting arbitration awards to give effect to parties’ stated desire to avoid court involvement.

VVA first argues that the arbitrator exceeded his authority by awarding IDG remedies that are inconsistent with the contract. But where, as here, the arbitration agreement does not expressly prohibit the specific remedies awarded by the arbitrator, California Supreme Court precedent requires only a rational relationship between the arbitrator's interpretation of the contract and the remedies awarded—nothing further. Ours is not to assess the merits of the arbitrator's contractual interpretation, even if, as VVA argues is the case here, it is inconsistent with the plain terms of the contract. The remedies the arbitrator awarded here bear a rational relationship to the arbitrator's interpretation of the contract, which we infer from the terms of the award itself and the record more generally. The arbitrator thus did not exceed his authority in awarding this remedy.

We also disagree with VVA's argument that the award is incomplete. Under the circumstances that existed at the time the arbitrator signed the award, it finally resolved all issues between the parties. Events that might—but are not necessarily likely to—happen in the future could render the remedy incremental, but the arbitrator retained jurisdiction to implement those potentially incremental terms, should such hypothetical events materialize.

As to VVA's third argument, in the unpublished portion of this opinion, we conclude that the arbitrator's assessment of certain evidence as irrelevant and his resulting refusal to reopen proceedings to admit such evidence do not render the arbitration process fundamentally unfair.

Thus, the trial court correctly confirmed the award.

BACKGROUND AND PROCEDURAL SUMMARY

A. The Contracts Underlying This Dispute

This litigation is part of a larger set of disputes between Gary Downs, William Rice, Douglas Day, and Kristoffer Kaufmann stemming from their ownership of a low income housing development entity called Highland Property Development, LLC (Highland).² One such dispute arose between Day, Downs, and Rice regarding Highland's efforts to acquire two low-income housing projects, Villa Vasona and Twin Oaks. To resolve this dispute, Day, Downs, and Rice agreed that appellant VVA, a housing development entity owned by Rice and Day, would acquire the two housing projects and assign a one-third economic interest in them to respondent IDG, a housing development entity owned by Downs.

IDG and VVA memorialized their agreements regarding the housing projects on February 1, 2013 with a complex set of contracts that included, among other documents, a set of substantively identical agreements the parties refer to as Distributable Cash Agreements (DCAs) and a set of limited partnership agreements (LPAs). Pertinent to the matter before us, each of the DCAs contains an arbitration clause and, as an amendment to the Highland operating agreement, a "Mandatory Buy-Sell of Membership Interests" clause, and a "Limitation of Buy-Sell Rights" clause.³ (Underlining omitted.)

The DCAs defined various events as "Buy-Sell Events" that could trigger the agreements’ buy-sell provisions. On the occurrence of a "Buy-Sell Event," either IDG or VVA could invoke the buy-sell provisions by sending a buy-sell notice to the other party. The notice was to contain "the terms and conditions for the Offering Party's purchase of the [i]nterests of the other party ... (the ‘Non-Offering Party’)." Upon delivery of a buy-sell notice, the contracts gave the other party—the Non-Offering Party—the option to purchase the Offering Party's interest "on the same terms and conditions set forth in the Buy-Sell Notice of the Offering Party" by giving the Offering Party notice of the election to exercise the option within 30 days after delivery of the buy-sell notice. The contracts also provided that "[t]he closing ... of the purchase and sale of any [i]nterest pursuant to this Mandatory Buy-Sell shall take place on the conditions and date identified in the Buy-Sell Notice delivered by the Offering Party, but not later than ninety (90) days after the delivery of the Buy–Sell Notice."

The agreements reference several third party lenders and investors, often referred to as "special" or "limited" "partner[s]." For example, the DCAs designate RBC Tax Credit Equity, LLC (RBC) as the "Investor Limited Partner" as well as the Special Limited Partner. Neither RBC, nor any other such "partner" or investor is a party to the arbitration, arbitration agreement, or this appeal.

The agreements create a role for RBC and other third party partners in consummating transactions resulting from a "Buy–Sell Notice" (buy-sell transactions). First, the LPAs provide that VVA could "withdraw from the Partnership or sell, transfer or assign its Interest as General Partner"—including via a buy–sell transaction—"only with the prior Consent of the Special Limited Partner [RBC] in its sole discretion, and of the Agency and the Project Lenders, if required." The "Limitation of Buy–Sell Rights" clauses in the LPAs reinforce that "the exercise and consummation of the rights under the Mandatory Buy-Sell shall be subject to (i) any consent rights of an Investor Limited Partner under the [project] Partnership Operating Agreement, and (ii) any consent or approval rights of any other third party if required under their documents, the [project] Partnership, and/or the [project co-general partner] Operating Agreement, including, but not limited to, any secured lender of the Project, the federal department of Housing and Urban Development, CBRE HMF, Inc., and the California Tax Credit Allocation Committee."⁴

B. The Buy-Sell Transaction at Issue

On February 17, 2014, IDG sent VVA a letter indicating that a buy-sell event had occurred and that IDG was invoking the DCAs’ mandatory buy-sell provisions. For each of the projects, IDG specified the closing would occur on the "[l]ater of 90 days following the date of this Buy-Sell Notice or receipt of [the] last of consents required under [each respective project's] Operating Agreement"—i.e., the consent of third party investors and partners, such as RBC, as outlined in the provisions discussed above. On March 18, 2014, VVA responded with a notice of election to purchase IDG's interests in the projects.

On June 16, 2014, VVA filed a complaint against IDG alleging IDG had breached the contract created by the DCAs, IDG's buy-sell notice, and VVA's notice of its election to purchase IDG's interests in the two projects.

Specifically, VVA claimed that IDG breached by refusing to execute closing documents and by refusing to transfer its interests in the projects to VVA.

C. The Parties’ Arbitration Agreement

The DCAs’ arbitration clauses read: "Any dispute or controversy between the parties arising out of this Agreement shall be submitted to the American Arbitration Association for arbitration in San Francisco or Los Angeles, California. The costs of the arbitration, including any American Arbitration Association administration fee, the arbitrator's fee, and costs for the use of facilities during the hearings, shall be borne equally by the parties to the arbitration. Attorneys’ fees may be awarded to the prevailing or most prevailing party at the discretion of the arbitrator. The provisions of Sections 1282.6, 1283, and 1283.05 of the California Code of Civil Procedure apply to the arbitration. The arbitrator shall not have any power to alter, amend, modify or change any of the terms of this Agreement nor to grant any remedy which is either prohibited by the terms of this Agreement, or not available in a court of law."

In July 2014, after VVA filed its complaint, Downs, Day, Kaufmann, Rice, VVA, and IDG entered into a global arbitration agreement intended to direct all of the parties’ disputes into a single arbitration proceeding. Part of that agreement modified the DCAs’ arbitration clauses to reflect the parties’ agreement to allow "all contemplated claims between and among them ... [to] be submitted to JAMS in Los Angeles, California for arbitration before a single arbitrator." The agreement expressly modified the DCAs’ arbitration clauses "in no other respect." The parties stipulated to stay the court case pending arbitration, and the trial court entered the stay...