Huang v. Henry Global Consulting CA2/4 ( 2023 )

Filed 7/18/23 Huang v. Henry Global Consulting CA2/4
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
JUNYANG HUANG et al., B317537
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. Nos.BC685035,
v. 19STCV37446)
HENRY GLOBAL CONSULTING et
al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Barbara M. Scheper, Judge. Affirmed.
Law Offices of Jeffrey T. Bell and Jeffrey T. Bell for
Plaintiffs and Appellants.
Venable, Belinda M. Vega, Witt W. Chang for Defendant
and Respondent Las Vegas Resort Holdings, LLC.
Appellants Junyang Huang, Shenghong Cheng, and Xiaole
Chen challenge the confirmation of an arbitration award in favor
of respondent Las Vegas Resort Holdings, LLC (Holdings) and
other parties not involved in this appeal. Appellants contend the
award should be vacated because the arbitrators exceeded their
authority by determining the arbitrability of and adjudicating
claims against non-signatories to the arbitration agreement,
adjudicating claims that sought punitive damages, unreasonably
limiting the scope of discovery, and resolving the matter without
an evidentiary hearing. We reject these contentions and affirm.
FACTUAL BACKGROUND
The underlying facts of this case stem from Holdings’s
renovation and rebranding of the Sahara Hotel and Casino in Las
Vegas into the SLS Las Vegas Hotel (the project).1 Because the
facts are complex and of limited relevance to the issues presented
on appeal, we provide only a brief overview here, drawn primarily
from appellants’ second revised statement of claims (SRSOC) and
the final arbitration award.
To obtain some of the funding necessary for the costly
project, Holdings participated in the United States Citizenship
and Immigration Service’s EB-5 Immigrant Investor Pilot
Program, which provides a path to permanent U.S. residency for
foreign nationals who invest at least $500,000 in approved job-
creating projects and meet other criteria. It is operated through
1 Holdings’s predecessors in interest acquired ownership of
the hotel in 2007 and operated the hotel and oversaw the project
for several years before ownership transferred to Holdings.
Because there is no dispute about Holdings’s interest, we use the
term “Holdings” to refer to the predecessors in interest as well as
Holdings.
2
various “regional centers” across the country; American Dream
Fund, LLC (ADF), operates the Las Vegas Regional Center
relevant to this case.
To facilitate investment by foreign nationals, Holdings
created a new business entity, SLS Lender, LLC, for the purpose
of making a $115 million loan to the project. Holdings also paid
for the preparation of a lengthy business plan for SLS Lender,
LLC. The business plan included detailed information about the
project and its financing, as well as the EB-5 program. It was
translated into Chinese and promoted in China along with other
marketing documents that contained information provided by
Holdings.
After the project commenced, Holdings created a second
business entity, SLS Tranche I Lender, LLC (Tranche I), for the
purpose of loaning up to an additional $200 million to the project.
Holdings prepared an addendum to the business plan as well as a
lengthy “confidential private placement memorandum” with
additional information about the project and the investment risks
it posed. These additional materials were also provided to
potential Chinese investors, including appellants. Appellants
allege that the materials failed to disclose agreements that
Holdings made to pay “finder fees” and “migration agent fees” to
marketer Henry Global Consulting Group and other entities.2
2 In their briefing here, appellants concede that the private
placement memorandum “did state that finder fees would be paid
to the marketers of the project by SLS Tranche 1 Lender, LLC
and Holdings.” They assert, however, that the private placement
memorandum “did not state the total amount of the fees, who
was receiving the fees, the terms of the fee agreements and did
not identify the risk associated with the fees to the viability of the
project.”
3
To invest in the project, appellants each purchased one
class B “membership unit” in Tranche I for $500,000, and paid an
additional administration fee of $45,000. They also each signed a
“subscription agreement” prepared by Holdings but signed by
Tranche I. Appellants and Tranche I also signed a one-page
“member joinder agreement” indicating their willingness to be
bound by Tranche I’s “operating agreement,” including an
arbitration provision in the operating agreement and expressly
incorporated into the member joinder agreement.
By signing the member joinder agreement, each appellant
signed and agreed to be bound by the operating agreement. ADF,
the sole class A member of Tranche I, also signed the operating
agreement. Holdings did not sign the operating agreement.
The operating agreement provided that “[t]he remedies
under this Agreement are cumulative and shall not exclude any
other remedies to which any Person may be lawfully entitled.” It
also contained an arbitration provision, which we excerpt below
in our discussion of the petition to compel arbitration.
Appellants signed the agreements and made their
investments in 2013 (Chen), 2014 (Huang), and 2015 (Cheng).
After the renovated and rebranded hotel opened in 2014, it failed
to generate revenue as expected and struggled financially;
appellants allege this, too, was concealed from them. In June
2017, appellants were informed that the hotel was going to be
sold. The class B members of Tranche I twice refused to approve
the sale. Appellants allege that the sale ultimately was approved
without a vote, and that the terms were concealed from them and
were unfavorable both financially and with respect to their
efforts to secure permanent U.S. residency.
4
PROCEDURAL HISTORY
I. Complaint
On November 30, 2017, appellants and 57 other class B
members of Tranche I filed suit against Holdings and numerous
other entities involved in the project, including ADF, the Las
Vegas Regional Center, Henry Global Consulting, and 200 Doe
defendants. The suit asserted seven causes of action. The first
cause of action for fraud sounded against “All Defendants” and
alleged fraud in the inception, concealment, and false promises.
The second cause of action for breach of fiduciary duty and third
cause of action for breach of contract-third party beneficiary
sounded against Henry Global Consulting, ADF, the Las Vegas
Regional Center, and other defendants (but not Holdings). The
fourth cause of action for permanent injunction sought to stop the
sale of the hotel and sounded against Tranche I; ADF; the Las
Vegas Regional Center; and Celona Asset Management (USA)
Limited, the class A manager of Tranche I. The fifth cause of
action for accounting and sixth cause of action for failure to
release records named the same defendants as the fourth cause of
action. The seventh cause of action for violation of Business and
Professional Code section 17200 sounded against ADF and Henry
Global Consulting. Plaintiffs prayed for relief including
compensatory damages, punitive damages, attorney fees, and
injunctive relief.
II. Petition to Compel Arbitration
On January 31, 2018, all defendants who had been served,
including Holdings, jointly filed a petition to compel arbitration.
They asserted that the arbitration provision in the operating
agreement required arbitration of plaintiffs’ claims. The
arbitration provision states, in pertinent part:
5
“Any controversy, dispute, or claim between the parties to
this Agreement arising out of, in connection with, or in relation to
the formation, negotiation, interpretation, performance, or breach
of this Agreement shall be submitted to JAMS (hereafter, the
‘Arbitration Service’) and shall be settled exclusively by
arbitration, before a three-member arbitration panel, in
accordance with this Section 10.9. This agreement to resolve any
disputes by binding arbitration shall extend to claims against any
parent, subsidiary, or Affiliate of each party, and, when acting
within such capacity, any officer, director, member, employee or
agent of each party, or any of the above, and shall apply as well
to claims arising out of state and federal statutes and local
ordinances as well as to claims arising under the common law.
Arbitration shall be the exclusive remedy for determining any
such dispute, whether in tort, contract, or otherwise, regardless
of its nature. Arbitration shall be governed by the
Comprehensive Arbitration Rules and Procedures and
International Arbitration Rules (or similar commercial
arbitration rules) of the Arbitration Service. In the event of a
conflict between the applicable rules of the Arbitration Service
and these procedures, the provisions of these procedures shall
govern. . . .
“In the event of a dispute subject to this Section 10.9, (a)
the parties shall be entitled to reasonable discovery subject to the
discretion of the arbitrator, (b) all testimony of witnesses shall be
taken under oath, and the admission of evidence shall be
governed by the rules of evidence applicable to civil proceedings
under applicable law, and (c) a stenographic record shall be kept
of all oral hearings. The remedial authority of the arbitrator
shall be the same as, but no greater than, would be the remedial
6
power of a court having jurisdiction over the parties and their
dispute; provided, however, that the arbitrator shall have no
power or authority under this Agreement or otherwise to award
or provide for the award of punitive or consequential damages
against any party. The arbitrator shall, upon an appropriate
motion, dismiss any claim without an evidentiary hearing if the
party bringing the motion establishes that he or it would be
entitled to summary judgment if the matter had been pursued in
court litigation. . . .
“In interpreting this Agreement, the arbitrator shall be
bound by and follow the substantive law of the State of Delaware.
To the extent applicable and not inconsistent with this Section
10.9, the arbitrator shall apply the Federal Rules of Civil
Procedure and the Federal Rules of Evidence.
“. . . The prevailing party in such arbitration, as
determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to reimbursement from the
other party for all of the prevailing party's costs (including but
not limited to the arbitrator’ s compensation), expenses, and
attorneys’ fees.
“The arbitrator shall render an award and written opinion,
and the award shall be final and binding upon the parties.
Judgment upon any award rendered by the arbitrators may be
entered by any state or federal court having jurisdiction thereof,
in accordance with the terms of the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. . . .”
Plaintiffs opposed the petition, and defendants filed a reply.
The trial court held a hearing, at which it granted the petition on
the ground that “questions of arbitrability are properly reserved
7
for the arbitrators.” The court stayed the matter as to the
moving defendants.
III. Arbitration
A. Arbitrability
A panel of three JAMS arbitrators received briefing and
held a hearing before ruling on arbitrability. As relevant here,
the arbitrators concluded that the parties agreed to arbitrate the
pending claims and that parties such as Holdings who were not
signatories could participate in the arbitration because “[a]ll
causes of action are intertwined with the Operating Agreement,
and multiple causes of action name and seek recovery against all
Respondents.”3 The arbitrators deferred ruling on the question of
whether the arbitration provision’s limitation on the their power
to award consequential and punitive damages limited the scope of
their authority over claims pursuant to which plaintiffs could
seek those damages.
B. Initial Dispositive Motions
According to the final arbitration award, plaintiffs’ initial
statement of claims (SOC) in the arbitration “contained claims for
alleged violations of federal and state securities laws, breach of
fiduciary duty, breach of contract, and claims ancillary to those
violations. The SOC was the subject of a dispositive motion
which the Panel granted in large part with leave to amend as to
some claims, but with prejudice as to others.” After these
3 By this point in the proceedings, appellants (along with the
other plaintiffs participating in the arbitration) had filed a
statement of claims against Holdings and others that differed
from and expanded upon the complaint filed in the trial court.
Notably, they not only retained but also added causes of action
against defendants, including Holdings, who had not signed the
operating agreement.
8
rulings, plaintiffs dismissed their claims with prejudice against
six defendants.
Plaintiffs subsequently filed a revised statement of claims
(RSOC) that winnowed their 10 causes of action down to four:
fraud, breach of fiduciary duty, accounting, and release of books
and records. Defendants again sought summary disposition.
After the motions were briefed and orally argued, the arbitrators
requested and received additional documents from defendants
and supplemental briefing from plaintiffs. The arbitrators
granted the motion in part, dismissing most of plaintiffs’ claims.4
However, the arbitrators gave plaintiffs leave to amend certain
aspects of their claims, including their allegations that
defendants failed to disclose various fee arrangements in the
project documents. Because it is relevant to appellants’
argument here, we quote a portion of the ruling:
“Claimants argue (although their allegations are not nearly
so specific) that Respondents obligated themselves by early 2013
to pay exorbitant fees to Henry Global and its alter egos that
were not reflected in the project cost data. The most recently
submitted documents sew [sic] additional confusion as additional
parties, who were apparently receiving fees from the Claimants’
capital, have now been identified. Moreover, . . . Claimants
alleged that Henry Global (possibly in the guise of other alter ego
entities) were [sic] entitled to $100 million (20% of loan amount
per year over five years), which is not identified in any project
4 Later, the arbitrators also dismissed with prejudice all
claims against Henry Global Consulting, Celona Asset
Management (USA) Limited, and Goldstone Advisors Limited,
due to plaintiffs’ failure to serve and bring those parties into the
arbitration.
9
cost data and, by implication, undermined the safety and value of
the investment. Moreover, the RSOC indicates that the
concealment of such fees was particularly egregious because the
Claimants were misled into thinking that the administrative fee
included [in] their investment, totaling $18 million, would cover
such fees. The Panel is not satisfied that this issue can be
resolved on the merits based on the RSOC, the parties [sic]
briefing, and the face of the relevant project documents. In the
Panel’s view, it seems likely that these issues can only be
resolved with testimony from participants in the transactions
who can provide insight into the structure and operation of the
transaction, and the reasons for the loan’s ultimate failure.
Thus, the Panel concludes that it would be prudent to allow
Claimants an opportunity to amend to more particularly spell out
this claim, including facts that would preclude the application of
the statute of limitations.”
C. Final Dispositive Motion
1. Second Amended Revised Statement of
Claims
Plaintiffs filed their SRSOC, which included only three
causes of action: fraud, breach of fiduciary duty, and accounting.
The arbitrators ordered the three remaining defendants,
Holdings, ADF, and Tranche I, to answer the claims.
2. Dismissal of Claims and Discovery Orders
on Remaining Claim
During a status conference with the arbitrators, the
remaining defendants argued that the breach of fiduciary duty
and accounting claims could not proceed due to Henry Global
Consulting’s dismissal from the matter. They further argued
that the fraud claim against them was untimely, and requested
10
the opportunity to resolve the timeliness issue via dispositive
motion. Plaintiffs asserted that the applicable statute of
limitations had been tolled, and “argued that a motion could not
proceed unless and until discovery was completed on that issue.”
The arbitrators subsequently issued an order dismissing
the breach of fiduciary duty and accounting claims as defendants
requested. They “further agreed that a dispositive motion could
be presented and that Claimants were entitled to discovery” on
the statute of limitations issue for the fraud claim. They ordered
“expedited, targeted discovery of documentary evidence bearing
on the statute of limitations/tolling question.”
Plaintiffs served a request for document production that
included requests for “All communications between any Claimant
and any Respondent related to: a. EB-5 funding costs[,] b. The KT
loan[,] c. The SBE/Stockbridge Loan,” “[a]ll documents related to”
those same topics, and “[a]ll communications between
Respondents and anyone regarding any public filings that
reasonably put Claimants on notice of their right to sue in this
matter.” Defendants objected to plaintiffs’ requests and the
parties were unable to compromise, so the arbitrators issued a
written “Ruling Re: Panel Ordered Document Production.”
In that ruling, the arbitrators characterized the document
requests as “extremely broad” requests “that exceed the objective
identified by the Panel.” They observed that “[t]he scope of the
requested discovery must be evaluated within the context of the
issue to be decided – the applicability of the statute of
limitations.” They further observed that plaintiffs were seeking
to establish tolling due to fraudulent concealment, which
“presents a high bar.” The arbitrators continued: “Whether
relevant information was concealed ultimately depends on the
11
substance of the alleged fraud. More specifically, did the
Respondents actively conceal information relevant to the
statement or statements that Claimants contend were false and
misleading. The scope of the claim has been the subject of prior
motions made by Respondents and orders issued by the Panel
. . . . [T]he Panel concluded that the case could proceed on the
theory that certain project costs, known to the Respondents, were
not disclosed to the Claimants and that they would not have
invested had they known of these costs, including an alleged fee
arrangement with Henry Global. The requests at issue must be
assessed in the context of the Claimant’s [sic] fraud theory.” The
arbitrators reviewed each of plaintiffs’ requests and significantly
narrowed them.
3. Final Arbitration Award
After discovery, the remaining defendants moved for
summary disposition of the final fraud claim on statute of
limitations grounds. According to the final arbitration award,
after the matter was fully briefed, “the Panel conducted a lengthy
hearing on the motion” and issued a written ruling granting it.
In the final arbitration award, the arbitrators concluded that the
statute of limitations on fraud claims had run absent tolling, and
plaintiffs failed to meet their burden of establishing the claims
were tolled. The arbitrators concluded that the declarations
plaintiffs proffered to support their tolling argument “were
conclusory and lacking in sufficient detail to be given any
weight,” and that plaintiffs’ expert declaration contained
“improper opinion testimony” and “offered no relevant evidence
on the issue to be decided.” They therefore found “undisputed”
that the project documents “contained information disclosing that
various marketing agents were being used to raise financing
12
through the EB-5 program for the renovation and development of
the SLS Hotel”; that “the marketing agents would be paid
substantial fees for services rendered, including fees from both
SLS Tranche I Lender from funds collected for administrative
fees, and additional fees paid by the project developer”; that the
business plan and addendum “disclosed the payment of financing
fees in the range of $64 million to $69 million”; and that SEC
filings made in 2014 “disclose information regarding the payment
of marketing fees, and the financial failure of the project.” “For
those reasons,” the arbitrators concluded that the “cause of action
for ‘project cost fraud’ based on the payment of excessive
marketing fees accrued before November 30, 2014” and that the
fraud claims were time-barred by the applicable three-year
statute of limitations.
The arbitrators denied plaintiffs’ motion for reconsideration
of their ruling on the final dispositive motion. The parties then
briefed the issues of fees and costs. The arbitrators ultimately
awarded full attorney fees and costs to ADF and Tranche I, and
ordered plaintiffs to reimburse Holdings for a portion of the
arbitration fees.
IV. Petitions to Confirm and Vacate
Holdings, ADF, and Tranche I filed a petition to confirm
the final arbitration award. Plaintiffs countered with a petition
to vacate the final arbitration award. The parties filed briefs
opposing each other’s petitions, and replies in support of their
own. In addition to other arguments they have since abandoned,
plaintiffs contended the arbitrators exceeded their authority in a
variety of ways and dispensed unfair “industrial justice” by
limiting discovery and denying plaintiffs a fair hearing.
13
The trial court held a hearing on the dueling petitions and
rendered an oral ruling granting the petition to confirm and
denying the petition to vacate. The appellate record does not
contain a reporter’s transcript of the hearing, and no party
requested a statement of decision. The court entered judgment in
favor of Holdings, ADF, the Las Vegas Regional Center, and
Tranche I and against appellants and the 57 other plaintiffs who
initially filed the court action.
Appellants timely appealed.
DISCUSSION
I. Standard of Review
Judicial review of private arbitration awards is generally
limited to the statutory grounds for vacating an award under
Code of Civil Procedure section 1286.2 and correcting an award
under Code of Civil Procedure section 1286.6. (ECC Capital
Corp. v. Manatt, Phelps & Phillips, LLP (2017) 9 Cal.App.5th
885, 899-900 (ECC Capital); see also Moshonov v. Walsh (2000)
22 Cal.4th 771, 775.) As relevant here, statutory grounds for
vacating an arbitration award exist where “[t]he arbitrators
exceeded their powers and the award cannot be corrected without
affecting the merits of the decision upon the controversy
submitted,” or where the arbitrators refused “to hear evidence
material to the controversy” or engaged in “other conduct . . .
contrary to the provisions of this title.” (Code Civ. Proc.,
§ 1286.2, subds. (a)(4), (a)(5).)
On appeal from an order confirming an arbitration award,
we review the trial court’s order de novo. (ECC Capital, supra, 9
Cal.App.5th at p. 900.) “Where, as here, neither side asked for,
and the trial court did not issue, a statement of decision, ‘the
appellate court will infer the trial court made implied factual
14
findings favorable to the prevailing party on all issues necessary
to support the judgment, including the omitted or ambiguously
resolved issues. [Citations.] The appellate court then reviews
the implied factual findings under the substantial evidence
standard.’” (Id. at pp. 900-901.)
We review the specific question of whether the arbitrators
exceeded their authority de novo. (ECC Capital, supra, 9
Cal.App.5th at p. 900.) “Arbitrators may exceed their powers
when they act in a manner not authorized by the contract or by
law, act without subject matter jurisdiction, decide an issue that
was not submitted to arbitration, arbitrarily remake the contract,
uphold an illegal contract, issue an award that violates a well-
defined public policy, issue an award that violates a statutory
right, fashion a remedy that is not rationally related to the
contract, or select a remedy not authorized by law.” (Cohen v.
TNP 2008 Participating Notes Program, LLC (2019) 31
Cal.App.5th 840, 868.) They generally do not exceed their
authority by reaching an erroneous conclusion of fact or law. (Id.
at p. 869.)
II. Analysis
Appellants contend the arbitrators exceeded their authority
in four primary ways. First, they argue the arbitrators had no
authority to determine the arbitrability of or adjudicate claims
against non-signatories to the arbitration agreement. Second,
appellants contend the arbitrators “did not have the right to hear
claims where the Appellants were seeking or could seek punitive
or consequential damages.” Third, appellants contend the
arbitrators exceeded their authority by denying appellants the
right to conduct “reasonable discovery” as required by the
arbitration provision, and thus violated appellants’ right to a fair
15
hearing. Finally, they argue the arbitrators exceeded their
authority by resolving the matter on dispositive motions and
making factual findings unsupported by evidence. We consider
these arguments in turn.
A. Arbitration of Claims Against Nonsignatories
Appellants argue that both federal and state arbitration
law require the trial court, not the arbitrator, to decide whether a
nonsignatory to an arbitration agreement may be ordered to
arbitration. We agree. “[N]otwithstanding an arbitrator’s broad
authority to resolve questions presented by a controversy, an
arbitrator has no power to determine the rights and obligations of
one who is not a party to the arbitration agreement.” (American
Builder’s Association v. Au-Yang (1990) 226 Cal.App.3d 170, 179.)
Thus, “[t]he question of whether a nonsignatory is a party to an
arbitration agreement is one for the trial court in the first
instance.” (Ibid.; see also Benaroya v. Willis (2018) 23
Cal.App.5th 462, 469-470.)
However, we also agree with Holdings that below,
appellants “agreed that all arbitrability issues – including ‘who
are proper parties to the Arbitration’ – should be heard by the
Panel, and that is what happened here.” Under the doctrine of
invited error, this is fatal to appellants’ claim of error. “The
doctrine of invited error provides that a party may not assert as a
ground for reversal an error that he or she induced the trial court
to commit.” (Maureen K. v. Tuschka (2013) 215 Cal.App.4th 519,
530; see also Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202,
212 [“Under the doctrine of invited error, when a party by its own
conduct induces the commission of error, it may not claim on
appeal that the judgment should be reversed because of that
error.”].) The logic behind this rule is that a party may not
16
mislead the trial court and then “profit[ ] therefrom in the
appellate court.” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383,
403.)
During the hearing on the petition to compel arbitration, at
which the parties litigated the questions of arbitrability and
equitable estoppel,5 plaintiffs specifically argued, “if we’re going
with the International Rules, it’s the arbitrator’s decisions [sic]
whether to allow third parties. . . . The defendants made the
argument that they should be able to join. The court said JAMS
arbitration rules says the arbitrator makes that decision. The
court can’t make it.” Plaintiffs later reiterated, “under the rules,
if we’re going to go by the JAMS rules govern, the JAMS
arbitrator makes that decision, not this court,” and explicitly
contended, “the arbitrator is the only one that has the right to do
it.”
Appellants’ attempts to make the opposite argument now
are not well-taken. This is particularly so in light of appellants’
immediate filing of an SOC naming Holdings and other
nonsignatories as respondents in additional causes of action
beyond those asserted in their trial court complaint, before the
arbitrators even resolved the issue of whether those parties could
5 The doctrine of equitable estoppel allows a nonsignatory to
enforce an arbitration provision where “the claims the plaintiffs
asserts [are] dependent upon, or founded in and inextricably
intertwined with, the underlying contractual obligations of the
agreement containing the arbitration clause.” (Goldman v.
KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218.) There are
other bases on which a nonsignatory may enforce an arbitration
agreement, but equitable estoppel is the only one the
nonsignatories argued in this case.
17
properly be joined, and failure to challenge the arbitrators’
authority to decide the equitable estoppel issue.
Our conclusion that the invited error doctrine forecloses the
arbitrability argument also forecloses appellants’ subsidiary
arguments that “Holdings should have never been permitted to
join the arbitration on equitable estoppel principles,” and the
arbitrators exceeded their authority by “allowing Holdings to
benefit from the contractual rights afforded to the parties to the
contract.” We therefore do not address appellants’ contentions
that the arbitrators erred by concluding equitable estoppel
applied, either by misapplying the law or making an erroneous
finding of fact. (See Moshonov v. Walsh, supra, 22 Cal.4th at p.
775-776.)
B. Arbitration of Claims Seeking Punitive or
Consequential Damages
Appellants next argue the arbitrators exceeded their
authority by adjudicating claims for which punitive or
consequential damages were an available remedy, including their
fraud and securities law causes of action. We disagree.
The arbitration provision states, in relevant part, that the
“remedial authority of the arbitrator shall be the same as, but no
greater than, would be the remedial power of a court having
jurisdiction over the parties and their dispute; provided, however,
that the arbitrator shall have no power or authority under this
Agreement or otherwise to award or provide for the award of
punitive or consequential damages against any party.”
Appellants assert that “the parties did not want the arbitrators to
hear or decide any issues that involve consequential damages,”
and that this language limited the arbitrators’ authority to hear
claims “where the Appellants were seeking or could seek punitive
18
or consequential damages.” The arbitrators deferred ruling on
the meaning of this language until after dispositive motions were
resolved. Due to the outcome of those motions, the issue was
never addressed. Appellants contend that “decision to wait and
see was in complete contradiction to the party’s [sic] agreement
and was not rationally related to the agreement.”
Holdings contends, and we agree, that the plain language
of the arbitration provision restricts the arbitrators’ authority to
award particular remedies but “provides no support for the
notion that the parties intended to limit the claims that the
Arbitrators are permitted to hear.” Indeed, the expansive
arbitration provision applies to “[a]ny controversy, dispute, or
claim between the parties to this Agreement arising out of, in
connection with, or in relation to the formation, negotiation,
interpretation, performance or breach of this Agreement”
regardless of the remedies associated with such claims. As the
trial court observed in its tentative ruling on the petition to
compel arbitration, “the arbitration simply caps [defendants’]
liability at the total amount of the loss and states that an
arbitrator cannot impose punitive damages on top of that
amount.” Appellants agreed to this limitation by signing the
operating agreement, and we see no error in the arbitrators’
decision to defer an express ruling until necessary.
Appellants alternatively point to another provision in the
operating agreement that states, “remedies under this
Agreement are cumulative and shall not exclude any other
remedies to which any Person may be lawfully entitled.” They
contend that provision, plus a provision from the separate
subscription agreement stating that “the undersigned does not . .
. waive any right granted to the undersigned under U.S. federal
19
or state securities law,” together allowed appellants to seek
punitive remedies “outside of the arbitration.” Appellants assert
it was not “rationale [sic] or reasonable” for the arbitrators to
“force the Appellants to litigate this costly matter before
arbitrators that could not award Appellant [sic] damages, but for
which it was still contractually permitted to seek those damages
outside of the arbitration.” This argument is not persuasive on
the question of what remedies the arbitrators were authorized to
award. Moreover, whether appellants were contractually
permitted to pursue certain remedies is not relevant in light of
the fact that they have not demonstrated an entitlement to any
remedies at all.
C. Discovery Limitations
As outlined above, the arbitrators limited the scope of
plaintiffs’ discovery requests on the tolling issue. Appellants
contend this “‘targeted discovery’ did not allow Appellants to
obtain the testimony that the arbitrators themselves
acknowledged was needed to address the true nature of the fraud
in the case.”6 They assert that because the defendants used the
6 The alleged “acknowledgement” was made in the
arbitrators’ award on one of the initial dispositive motions, which
is also quoted above: “The Panel is not satisfied that this issue
can be resolved on the merits based on the RSOC, the parties
[sic] briefing, and the face of the relevant project documents. In
the Panel’s view, it seems likely that these issues can only be
resolved with testimony from participants in the transactions
who can provide insight into the structure and operation of the
transaction, and the reasons for the loan’s ultimate failure.
Thus, the Panel concludes that it would be prudent to allow
Claimants an opportunity to amend to more particularly spell out
this claim, including facts that would preclude the application of
the statute of limitations.”
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project documents in support of the final dispositive motion on
the statute of limitations, the arbitrators should have allowed
appellants “to dispose [sic] someone with knowledge of their
content.” They further contend that the discovery limitations
prevented them from obtaining “the hard data and records that
were used to compile the financial tables that were presented to
the Appellants,” which in turn prevented them from establishing
how the defendants “committed the fraud through their own
financial documents.” Appellants also claim that the discovery
limitations deprived them of a fair hearing by limiting their
ability “to develop the circumstantial evidence necessary to prove
their fraud claim or successfully oppose the final dispositive
motion.”
The arbitration provision states that “the parties shall be
entitled to reasonable discovery subject to the discretion of the
arbitrator.” It also requires the arbitrators to “apply the Federal
Rules of Civil Procedure and the Federal Rules of Evidence” “[t]o
the extent applicable and not inconsistent with” the arbitration
provision. Appellants essentially contend the arbitrators violated
the Federal Rules of Civil Procedure and abused their discretion
by depriving appellants of reasonable discovery. We disagree.
Appellants selectively quote Federal Rule of Civil
Procedure Rule 26(b)(1) for the proposition that “[p]arties may
obtain discovery regarding any nonprivileged matter that is
relevant to any party’s claim or defense and proportional to the
needs of the case.” (Fed. Rules Civ. Proc., rule 26(b)(1), 28
U.S.C.) However, they ignore the first clause of that rule, which
states that it describes the scope of discovery “[u]nless otherwise
limited by court order.” (Ibid.) The rule expressly contemplates
that a court may limit discovery. That is precisely what the
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arbitrators did here; they were authorized to do so both by the
rule and the arbitration provision. “[A]rbitration is meant to be a
streamlined procedure. Limitations on discovery. . . is one of the
ways streamlining is achieved.” (Dotson v. Amgen, Inc. (2010)
181 Cal.App.4th 975, 983.) The arbitrators’ discovery order did
not exceed their authority. The written order addressed each of
plaintiffs’ document requests individually and “in the context of
the Claimant’s [sic] fraud theory.” The arbitrators’ previous
statement that “it seems likely that these issues can only be
resolved with testimony from participants in the transactions”
did not commit them to authorizing depositions or witness
testimony to resolve claims that had since been amended.
Moreover, arbitration procedures violate the common law right to
a fair hearing “‘“only in the clearest of cases, i.e., when the
applicable procedures essentially preclude the possibility of a fair
hearing.” [Citation.]’” (Hoso Foods, Inc. v. Columbus Club, Inc.
(2010) 190 Cal.App.4th 881, 888-889.) Appellants have not
demonstrated that the discovery limitations crossed that high
threshold.
D. Reliance on Dispositive Motions
Appellants finally contend that the arbitrators overstepped
their authority by resolving the matter on dispositive motions,
which did not meet the standard of proof required by the
arbitration provision. They again point to the arbitrators’ order
stating that it “seems likely” that an evidentiary hearing would
be required, asserting that this statement “essentially foreclosed .
. . that the matter could not be resolved without an evidentiary
hearing.” They also argue the arbitrators erroneously concluded
that certain factual matters were undisputed.
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The arbitration provision states, “The arbitrator shall, upon
an appropriate motion, dismiss any claim without an evidentiary
hearing if the party bringing the motion establishes that he or it
[sic] would be entitled to summary judgment if the matter had
been pursued in court litigation.” The applicable JAMS rule
similarly provides, “The Arbitrator may permit any Party to file a
Motion for Summary Disposition of a particular claim or issue,
either by agreement of all interested Parties or at the request of
one Party, provided the other interested Parties have reasonable
notice to respond to the request.” The arbitrators had authority
under these provisions to resolve the matter on dispositive
motions.
As previously discussed, the arbitrators’ statement about
the possible need for a hearing was made in the context of
resolving a dispositive motion, and granting plaintiffs leave to
amend their fraud claim. It did not preclude the subsequent use
of dispositive motions. Appellants assert that “[a]t this point, the
arbitrators should have transferred into allow [sic] full
reasonable discovery and scheduling a trial on the merits.”
However, after the arbitrators’ statement, plaintiffs filed the
SRSOC, thus amending their claims. The arbitrators provided
plaintiffs with an opportunity to conduct discovery, file briefing,
and make arguments at a hearing before resolving the final
dispositive motion. They were not required to do more.
As appellants observe, the Federal Rules of Civil
Procedure, which apply here per the arbitration provision,
authorize summary judgment where “the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” (Fed. Rules
Civ. Proc., rule 56(a), 28 U.S.C.) Appellants contend various
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material facts remained in dispute, citing testimony from their
expert. However, as noted above, the arbitrators rejected
plaintiffs’ declarations and that of their expert, rendering
undisputed the contrary evidence proffered by defendants.
Appellants’ dissatisfaction with the arbitrators’ evidentiary
rulings and resultant conclusions that certain facts were
undisputed is not relevant to whether the arbitrators exceeded
their authority.
Appellants have not demonstrated that the arbitrators
exceeded their authority. We thus find no basis to conclude that
the trial court erred in confirming the final arbitration award.
DISPOSITION
The judgment is affirmed. Respondent Holdings may
recover its costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
COLLINS, J.
We concur:
CURREY, P.J.
MORI, J.
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