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Greenspan v. LADT

June 25, 2010

ARNOLD GREENSPAN, AS TRUSTEE, ETC., PLAINTIFF AND RESPONDENT,
v.
LADT, LLC, ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from an order and a judgment of the Superior Court of Los Angeles County, Robert L. Hess, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC356794).

The opinion of the court was delivered by: Mallano, P. J.

CERTIFIED FOR PUBLICATION

A trust filed this action alleging breach of contract and other claims against two affiliated companies, only one of which was a party to the contract. The trust also named as a defendant the individual who controlled the companies. Defendants petitioned the trial court to compel arbitration of the claims. The trial court granted the petition.

The parties selected an arbitrator associated with Judicial Arbitration and Mediation Services, Inc. (JAMS). Previously, some of the parties, including the trust and the individual defendant, had chosen JAMS and the same arbitrator to hear a separate dispute. Before the arbitrator heard this case, he rendered an award in the other matter, finding the individual defendant liable to the trust. The individual responded by filing a civil suit against the arbitrator, alleging the award was untimely.

Thereafter, in this case, defendants requested that the arbitrator recuse himself in light of the civil suit. The arbitrator declined. JAMS also denied the request, providing a written explanation. Defendants sought relief in the trial court without success.

The arbitration hearing went forward. After the presentation of evidence, the parties submitted briefs. Twenty-eight days later, the arbitrator rendered an interim award, finding in favor of the trust on the contract claim and awarding approximately $6.34 million against the company that was a party to the contract. Defendants otherwise prevailed. The interim award also reserved certain issues for resolution in the final award, including attorney fees and the liability, if any, of the noncontracting company. As to those issues, the arbitrator requested additional briefs and declarations, and established a timetable for the remaining proceedings. In the final award, which reiterated the terms of the interim award, the arbitrator awarded attorney fees to the trust and concluded that the two companies should be jointly and severally liable for breach of contract.

The trust returned to the trial court and filed a petition to confirm the award. The companies petitioned to vacate it. The trial court confirmed the award and entered judgment accordingly.

On appeal, the companies argue the award should be vacated because: (1) the Trust did not plead joint and several liability on the breach of contract claim and thus the issue was not arbitrable; (2) the arbitrator's finding of joint and several liability was not rationally related to the parties' contract; (3) the final award was not timely under JAMS rules; and (4) the arbitrator should have been disqualified based on the civil suit brought against him by the individual defendant.

We affirm for several reasons. First, as provided by JAMS rules, the arbitrator, not a court, determines what issues are arbitrable, and consequently we defer to the arbitrator's determination that the issue of joint and several liability was arbitrable. Second, the arbitrator's finding of joint and several liability was rationally related to the parties' contract. Third, as to the timeliness of the final award under JAMS rules, the arbitrator's interpretation and application of the rules cannot be judicially reviewed on the merits. Last, although we do not defer to the arbitrator or JAMS on the merits of the disqualification issue, we independently conclude the suit against the arbitrator was barred by arbitral immunity and would not have caused a reasonable person to doubt the arbitrator's impartiality.

I. BACKGROUND

The allegations and facts in this case are taken from the complaint, the petition to compel arbitration, and the respective petitions to confirm and vacate the arbitration award.

A. Parties' Contract

In 1998, LADT, LLC (LADT), purchased the Higgins Building in downtown Los Angeles. LADT converted the dilapidated structure, built in 1910, from an office building into apartments. In 2003, Barry Shy, who managed LADT, proposed to convert the Higgins Building into loft-style residential condominiums, with commercial units on the ground floor. At the time, Shy held a 50 percent interest in LADT through a company he controlled, LABAR, LLC. The Andrew Meieran Family Trust held the other 50 percent. Arnold Greenspan was the trustee of the Trust. (For convenience, we refer to the Andrew Meieran Family Trust as Trust, to Andrew Meieran as Meieran, and to Arnold Greenspan as Greenspan.)

The Trust's goal was to develop and operate historic bars, not just real estate. For that reason, the Trust decided to sell its interest in LADT and to acquire commercial space on the ground floor of the Higgins Building, where it would later build the Edison Bar.

On August 20, 2004, the Trust sold its 50 percent interest in LADT to a new company controlled by Shy -- LA ABC, LLC (LA ABC) -- for $7.75 million, payable in two installments, and title to six commercial units in the Higgins Building valued at $3.5 million altogether. The "Purchase Agreement" recited that it was "entered into . . . by and between Arnold Greenspan, Trustee of the Andrew Meieran Family Trust u/a/d 12/19/03 . . . (the 'Seller'), and LA ABC, a California limited liability company (the 'Purchaser')."

Section 6 of the Purchase Agreement addressed the duties of LADT, stating: "LADT hereby consents to the terms of this Agreement, including, without limitation, the provisions of . . . Section 4. LADT shall cooperate with the parties hereto and take all actions and execute any agreements and other documents necessary to effectuate the transactions contemplated by this Agreement, including, without limitation, the transactions set forth in . . . Section 4, as necessary. In addition, Barry Shy, individually, agrees to guarantee all the obligations of Purchaser pursuant to Section 4 hereof, and Andrew Meieran, individually, agrees to guarantee all of the obligations of Seller hereunder." Section 4 stated that LA ABC would indemnify the Trust for any breach of the Purchase Agreement by LA ABC and that the Trust would indemnify LA ABC with respect to any breach by the Trust.

The Purchase Agreement was signed by Greenspan as trustee of the "Seller" --the Trust -- and by Shy as manager of the "Purchaser" -- LA ABC. For its part, LADT "acknowledged and agreed . . . to Section 6" of the Purchase Agreement, with Shy signing twice, first as manager of LADT and then individually; Meieran signed as a member of LADT. The Purchase Agreement did not have an arbitration provision. It contained an integration clause stating: "This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, both written and oral, among such parties with respect to such subject matter. This Agreement may not be amended or modified in any way, except by a written instrument executed by all of the parties hereto."

On February 17, 2005, LA ABC transferred six commercial units to the Trust. During the construction phase of the project, Shy and Meieran had a number of disagreements. They argued about walls that had been moved, trash areas, parking spaces, and storage spaces. LA ABC failed to make the second of the two installment payments due under the Purchase Agreement.

B. Mediation

In an attempt to settle their disputes, Shy and Meieran participated in a mediation on September 26, 2005. The mediation resulted in a handwritten document drafted by the mediator, which Shy and Meieran signed. The document contained a list of 10 items to be provided or completed by LA ABC, including "[p]ay for 50% to upgrade electrical power," "3 parking spaces for free for 5 years," and "[f]inish existing bathroom in unit 107." The document concluded: "This is the agreement between the parties with regard to the purchase of LADT by LA ABC [from] Andrew Meieran Living Trust . . . . The parties hereby agree that LA ABC will do or perform or pay these items in exchange for release from the Trust with respect to this purchase (. . . the Higgins Building), and as full satisfaction of the obligation of LA ABC with regard to the tenant improvements. [¶] Any dispute as to the interpretation of this agreement shall be submitted to mediation, failing which, shall be submitted to binding arbitration." (For clarity, we will refer to the handwritten document as the Arbitration Agreement.)

C. Complaint

On August 10, 2006, Greenspan, as trustee of the Trust, filed this action against LADT, LA ABC, and Shy. The complaint alleged as follows.

LA ABC failed to pay more than $4.2 million of the purchase price for the Trust's interest in LADT. LA ABC did not obtain the certificate of occupancy required by the Purchase Agreement, preventing the Trust from using the commercial units in the Higgins Building. LA ABC also interfered with the Trust's use of parking spaces and storage space in the building.

The complaint asserted seven causes of action: (1) rescission of the Purchase Agreement, against LA ABC and LADT; (2) breach of the Purchase Agreement, against LA ABC; (3) breach of guaranty, against Shy; (4) breach of fiduciary duty, against Shy; (5) accounting, against all defendants; (6) conversion, against all defendants; and (7) constructive trust, against all defendants.

Under the heading, "Parties Involved," the complaint recited: "Plaintiff is informed and believes, and based thereon alleges, that all of the acts set forth in this Complaint alleged to have been done by each defendant were authorized, approved, or ratified by each of the other defendants. Plaintiff is informed and believes and thereon alleges that each of the defendants is the agent, servant, employee, partner, associate, joint venturer, co-participant and/or principal of the remaining defendants." (Italics added.)

D. Petition to Compel Arbitration

On September 22, 2006, defendants filed a petition to compel arbitration and stay the action pending the outcome of arbitration. According to the petition, the Arbitration Agreement required the parties to arbitrate disputes related to the Purchase Agreement. The Trust filed opposition papers, contending it was not a party to any agreement containing an arbitration clause, and the Arbitration Agreement did not encompass the causes of action in the complaint. At a hearing on October 11, 2006, each side claimed the other had drafted the Arbitration Agreement. The hearing was continued so the parties could retain a document examiner to determine who wrote the agreement. On November 8, 2006, the parties filed a stipulation, agreeing that the mediator was the author. The hearing resumed and concluded on December 11, 2006. The trial court, Judge Robert L. Hess presiding, took the matter under submission.

By order dated January 11, 2007, the trial court found "the parties have entered into a valid agreement to submit disputes regarding the Higgins Building initially to mediation and thereafter to binding arbitration. [¶] . . . Plaintiff is to initiate mediation, and defendants are to cooperate in that initiation. Should mediation be unsuccessful, the parties are to attempt to agree upon an arbitrator. If the parties are unable to agree, the Court on application will select an arbitrator."

E. Resolution of a Separate Dispute

The Trust was also in the midst of a dispute concerning a different real estate project with Shy and one of his other companies, Manhattan Loft, LLC (Manhattan Loft). That project was nicknamed the "215 Building" because of its location, 215 West Sixth Street, Los Angeles. The Trust accused Manhattan Loft and Shy of breaching the purchase contract for the 215 Building by interfering with the Trust's use of leased space. Pursuant to an arbitration clause in the purchase contract, the Trust, Manhattan Loft, and Shy selected retired Judge Keith Wisot as the arbitrator, in association with JAMS. The arbitration hearing started on June 11, 2007, and continued intermittently until July 2, 2007. Posthearing briefs were submitted.

On October 4, 2007, the arbitrator rendered an interim award in the 215 Building arbitration, finding in favor of the Trust and awarding it approximately $13.5 million in damages against Manhattan Loft and Shy. After additional briefing, the arbitrator rendered a final award on November 5, 2007, granting the Trust's request for almost $1 million in attorney fees and costs. Manhattan Loft and Shy sought to vacate the award, while the Trust sought to confirm it (Greenspan v. Manhattan Loft, LLC (Super. Ct. L.A. County, 2007, No. BS111465)). In seeking to set aside the award, Manhattan Loft and Shy argued the arbitrator had decided claims not submitted to arbitration, granted relief not rationally related to the contract, and failed to issue the final award in a timely manner. The superior court, Judge Richard L. Fruin presiding, modified the award by excising over $12 million and confirmed the award as modified. Both sides appealed.

On October 16, 2007, shortly after the interim award had been issued in the 215 Building arbitration, Shy filed a civil suit against the arbitrator, alleging the arbitrator had violated JAMS rules by not issuing a timely final award (Shy v. Wisot (Super. Ct. L.A. County, 2007, No. BC379171)). The complaint sought the return of the arbitral fees and costs Shy paid in connection with the 215 Building arbitration.

The suit against the arbitrator was stayed pending the appeal of Judge Fruin's order modifying and confirming the award in the 215 Building case. On appeal, Division Three of this district rejected all of the challenges to the award and held that Judge Fruin had erred by modifying it (Greenspan v. Manhattan Loft, LLC (Nov. 10, 2009, B205917 [nonpub. opn.]). Division Three reversed and remanded with directions to confirm the award as rendered.

In light of Division Three's decision, which concluded that the arbitration award was timely, there were no grounds for the suit against the arbitrator. Shy dismissed the case with prejudice.

F. Arbitration in this Action

Meanwhile, after Judge Hess issued the January 11, 2007 order granting the petition to compel arbitration in this action, the parties failed to resolve their disputes through mediation and proceeded with selecting an arbitrator. They, too, chose retired Judge Keith Wisot, in association with JAMS.

Preliminary proceedings in the arbitration, including conferences and motion hearings, began in March 2007 and continued for several months. At an initial status conference on March 7, 2007, the parties agreed that the arbitration would be governed by "JAMS Comprehensive Arbitration Rules & Procedures." Those rules became effective on March 26, 2007 (JAMS Rules or Rules).*fn1 The Trust subsequently moved to amend the complaint to add a cause of action for fraud. The arbitrator granted the motion.

In March 2007, the parties executed an "Agreement[] Concerning Hold Instructions," which required the arbitrator to decide how to dispose of certain funds belonging to LADT. The funds were generated by LADT's sale of two condominiums in the Higgins Building. At some point, the Trust had recorded a lis pendens against those units, preventing the closing of escrow. The Trust eventually removed the lis pendens, allowing the units to be sold, in exchange for the Trust's promise to hold the sales proceeds for disposition by the arbitrator. The Agreement Concerning Hold Instructions (Hold Funds Agreement) stated: "Whereas, on or about March 9, 2007, Arnold Greenspan, as Trustee of the Andrew Meieran Family Trust, and Barry Shy, as managing member of LADT LLC, executed Hold Instructions for the seller's net proceeds concerning Units 906 and 1001 of the Higgins Building in order to allow the sales of these Units to be closed.

"The Undersigned hereby agree that they will execute Mutual Instructions ('Instructions'), on or before April 30, 2007, to Mara Escrow. These Instructions will provide that Mara Escrow will transfer the monies held in its interest bearing account, pursuant to the Hold Instructions, to a joint blocked account designated by the undersigned parties. Said account will be opened by the undersigned parties in an institution that is FDIC insured. The account will be [a] blocked account and the institution will receive instructions that the funds may only be released to a person or entity designated by Judge Wisot in his final award in [the Higgins Building arbitration].

"The parties hereby waive any right to challenge, in court or otherwise, any order to release these funds as set forth in Judge Wisot's final award."

The Hold Funds Agreement was signed by Shy as manager of LADT and by Greenspan as trustee of the Trust.

Before the arbitration hearing commenced in this action, the arbitrator issued the interim award in the 215 Building arbitration. He found Manhattan Loft and Shy jointly and severally liable to the Trust in the amount of $13,550,522. Within two weeks of the award, Shy filed a civil suit against the arbitrator (Shy v. Wisot, supra, No. BC379171).

In the present action, defendants requested that the arbitrator recuse himself in light of the civil suit. The arbitrator declined, finding defendants had not shown good cause for disqualification. On December 13, 2007, JAMS issued a written denial of the request, stating: "Your request that Judge Wisot disqualify himself from serving as an arbitrator in Greenspan v. LADT . . . has been referred by Judge Wisot to the [JAMS National Arbitration Committee (NAC)] for resolution in accordance with the JAMS Rules.

"As explained below, the NAC denies the request.

"You assert Judge Wisot should be disqualified in Greenspan v. LADT because he made credibility findings regarding Mr. Shy in Greenspan v. Manhattan Loft . . . ; because the claimant in [the] Greenspan v. Manhattan Loft matter has moved to confirm the final award issued; and because you have filed a lawsuit against Judge Wisot and JAMS in which you assert Judge Wisot lost jurisdiction to issue a timely award in Greenspan v. Manhattan Loft. These assertions do not provide good cause for disqualifying Judge Wisot.

"Manhattan Loft and Mr. Shy agreed Judge Wisot would serve as arbitrator in both Greenspan v. Manhattan Loft [(the 215 Building case)]and Greenspan v. LADT [(the Higgins Building case)]. Your clients further requested that Judge Wisot arbitrate these two related matters separately. By so doing, your clients accepted the possibility that Judge Wisot would issue an award in one matter before doing so in the other. Obviously, your clients also accepted the possibility that Judge Wisot would determine issues of fact and law against them. Thus, the fact that Judge Wisot made findings of fact adverse to your client in Greenspan v. Manhattan Loft does not call for his disqualification in Greenspan v. LADT.

"Similarly, the Petition to Confirm Judge Wisot's Final Award in Greenspan v. Manhattan Loft now pending in Los Angeles Superior Court does not require the disqualification of Judge Wisot in Greenspan v. LADT. The process being followed by Greenspan is required pursuant to [Code of Civil Procedure section] 1285 et seq.

"Finally, your clients' lawsuit against JAMS and Judge Wisot, which has been stayed temporarily, and may be stayed and/or abated pending the resolution of the Petition to Confirm, provides no basis for disqualification. The fact that a losing party in an arbitration has sued does not in and of itself serve as grounds for recusal of the arbitrator in another arbitration pending before the arbitrator. Bringing the lawsuit is a voluntary act by the losing party, and should not be permitted to serve as a mechanism for influencing or controlling proceedings in other ongoing matters.

"Accordingly, your clients' request that Judge Wisot be disqualified in Greenspan v. LADT is denied. Judge Wisot is . . . to proceed with the pending arbitration."

On December 21, 2007, defendants filed a motion in the trial court seeking to have the arbitrator disqualified because of Shy's civil suit. The motion was heard and denied on January 23, 2008. At the hearing, Judge Hess directed some of his comments to defendants' counsel, stating: "This is a situation where you have agreed that the same arbitrator is going . . . to hear both these disputes.

"The first one turned out adversely to you, and now you are objecting to the arbitrator. . . . The fact that you may think that the arbitrator is biased against you because he found against you on the merits in the other case, and therefore should be recused . . . -- this is a little bit of a hard sell. [¶] . . . [¶]

"There was no basis for challenging him as far as I can see, prior to the initiation of the arbitration and prior to his beginning to hold evidentiary proceedings in this [case].

". . . You have to get the award, whatever the award is, and then we will see where we are. . . . I have a dim view of people who try and disqualify arbitrators by suing.

"You are trying to create the basis for disqualification where none exists. . . . [T]he impression that I have here, is that you are trying by hook or by crook, to shortcut this, and you don't like the results, and so it doesn't matter what you try and do. [You] are pulling out all the stops [by] whatever means.

". . . [I]t doesn't engender a lot of sympathy. I have no personal stake in the outcome of this case. I don't care who wins or who loses, but we need to proceed in a regular fashion . . . , according to ...


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