(San Mateo County Super. Ct. No. CIV 445795)
The opinion of the court was delivered by: Bruiniers, J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Respondent Kiet Nguyen (Nguyen) was one of two members of TMT Associates, LLC (TMT), a real estate holding limited liability company. The other was Thomas Peirona. Thomas Peirona died suddenly in 2005, and his estate and his surviving spouse, Louise Peirona (collectively Plaintiffs), sued Nguyen over their entitlement to distributions from TMT's income. The trial court entered a preliminary injunction restricting use of the company's funds. Other trial court proceedings were stayed and Plaintiffs' claims were submitted to arbitration, with an agreement by the parties that the injunction would remain in effect until the arbitration was resolved.
While the arbitration was pending, the parties (including Nguyen's spouse, Kim Nguyen) repeatedly returned to court seeking further provisional relief. Late in the arbitration proceeding, Plaintiffs asked the court to lift the stay of the trial court litigation so that they could abandon the arbitration. The court denied the motion and sanctioned Plaintiffs for bringing it. The trial court subsequently confirmed the final arbitration award, which rejected many of Plantiffs' claims.
Plaintiffs challenge the order confirming the final arbitration award, the denial of their motion for relief from the stay of trial court proceedings, and the trial court order imposing sanctions. We affirm these orders. We also grant motions by Nguyen and TMT for sanctions against Plaintiffs for pursuing a frivolous appeal; we further impose sanctions on Plaintiffs payable directly to the clerk of this court both for a frivolous appeal and for repeated violations of appellate rules; and we grant Kim Nguyen's request for an award of attorney fees on appeal.
In September 1996, Nguyen and Thomas Peirona formed TMT for the purpose of acquiring leasehold interests and option rights in certain commercial property in San Mateo County (the Property).*fn1 A company owned by Nguyen, KLN Precision Machining Company (KLN) (later renamed KLN Engineering Corporation), already held a lease on the Property, as well as an option to purchase the Property at a price of $4.1 million. At the time TMT was formed, the Property had a market value of $19.25 million. After TMT was formed, KLN assigned the lease and its purchase option to TMT. TMT then subleased space in the Property to KLN and another tenant, Inhale Therapeutic Systems, Inc., which later became Nektar Therapeutics (Nektar). Nektar held an option to purchase the Property from TMT at a price of slightly more than $25 million in 2005, escalating annually.
In April 1997, TMT exercised its purchase option and acquired the Property. In November 1997, it refinanced the Property with a $14 million loan secured by the Property (the Loan). The loan was originally held by Credit Suisse and was later transferred to Wachovia Securities (Lender). As of January 2005, TMT still owed $13 million on the Loan.
The TMT Operating Agreement (Operating Agreement) provided that Nguyen and Thomas Peirona held 51 percent and 49 percent ownership interests, respectively. (Section 1.3.) Upon Thomas Peirona's death, his estate and spouse became assignees of his interest in TMT, but not members, and Nguyen became the sole member and manager of TMT. (Sections 4.1, 5.2, 5.4.) Subject to certain restrictions, the Operating Agreement required that TMT's "cash available for distribution" (cash available after paying all ordinary and necessary expenses, maintaining reserves, and repaying loans) be distributed to the members according to their percentage interests. (Section 3.5(b)(3).) The Operating Agreement also required mediation and binding arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, the Company or the Members' rights and duties," with the prevailing party to recover his or her fees and costs. (Section 8.7.) The members' spouses, Kim Nguyen and Louise Peirona, signed "Consent of Spouse" declarations in which each agreed to be bound by the terms of the Operating Agreement.
Thomas Peirona's Death and Louise Peirona's Lawsuit
Thomas Peirona died suddenly on February 11, 2005, and Louise Peirona (Peirona) acquired his community interest in TMT. Although Thomas Peirona had received monthly distributions of $40,000 to $60,000 from TMT before his death, Peirona received no distributions after his death and Nguyen failed to respond to numerous inquiries by her and her counsel. When a family friend finally contacted Nguyen, Nguyen gave Peirona a $20,000 distribution, without explanation of the amount. Moreover, a certified public accountant hired by Peirona opined that TMT's tax records for 2002 appeared to show far greater distributions to Nguyen than were justified by his 51 percent interest in the company.
In March 2005, Peirona sued Nguyen and TMT. Peirona asserted claims against Nguyen for conversion, breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, fraud and deceit, and negligent misrepresentation. She alleged that Nguyen was not distributing TMT's receipts in accordance with the Operating Agreement and that he had taken capital distributions from TMT that were three times greater than those taken by Thomas Peirona and may have used the distributions for his personal benefit. She sought an accounting, declaratory relief, imposition of a constructive trust against both Nguyen and TMT, and injunctive relief against Nguyen.
Temporary Restraining Orders and January 6, 2006 Preliminary Injunction
On March 30, 2005, Peirona applied for an ex parte order prohibiting Nguyen from disbursing any assets of TMT except for certain specified monthly expenses. Nguyen agreed to the terms of a temporary restraining order in March and again in April, and the parties participated in mediation as required by the Operating Agreement. When the mediation proved unsuccessful, the trial court (Judge Quentin L. Kopp) incorporated the terms of the restraining order into a preliminary injunction on November 15, and thereafter entered a stipulated amended preliminary injunction that was filed January 6, 2006 (January 6, 2006 Preliminary Injunction).
The January 6, 2006 Preliminary Injunction enjoined Nguyen from using any of TMT's assets except to pay four specified monthly TMT obligations and "other expenses pertaining to the subject property to which [Peirona] may consent in writing, and which consent shall not be unreasonabl[y] withheld." The injunction ordered TMT's net receipts distributed on a monthly basis to Nguyen and Peirona according to their respective 51 percent and 49 percent interests in the company.
Motion to Compel Arbitration and June 6, 2006 Stipulation to Arbitrate
On November 23, 2005, Nguyen moved to compel arbitration. Peirona initially filed a notice of nonopposition that stated, "This non-opposition is based upon an understanding between counsel for the parties that the preliminary injunction ordered by this court on November 15, 2005 shall remain in place . . . ." On December 20, 2005, however, Peirona opposed the motion to compel arbitration after discovering that Nguyen had encumbered the Property in 2003 with a $1.6 million deed of trust, apparently for his personal benefit, but had only recorded the encumbrance in October 2005. She also discovered that Nguyen had used some of the proceeds of TMT's November 1997 refinancing of the Property to purchase his residence in Atherton, California.
The matter of the newly-discovered deed of trust was resolved by February 2006, and the encumbrance on the Property was removed.*fn2 Nguyen's alleged use of TMT funds to purchase his Atherton home, however, was not resolved. In a March 2006 second amended complaint, Peirona sued not only in her personal capacity (as in her original complaint) but also as administrator of the Estate of Thomas Peirona (Estate)*fn3 and on behalf of TMT. Plaintiffs added claims that Nguyen misused TMT funds to purchase his marital residence in Atherton and added as defendants Kim Nguyen and other entities related to the financing of the Atherton home.*fn4 They brought quiet title, constructive trust, and resulting trust causes of action with respect to the Atherton property in addition to their original causes of action. They also requested appointment of a receiver for TMT.
In May 2006, Nguyen renewed his motion to compel arbitration and also moved to expunge a lis pendens Peirona had recorded on the Atherton property. Plaintiffs filed a "Partial Opposition" to the motion to compel arbitration, explaining that they were "not opposed to the referral of this matter to arbitration. However, [they] object[ed] to exempting certain matters currently before the court, namely issues surrounding the lis pendens placed . . . against Nguyen's Atherton, California residential property, from the arbitration proceedings." (Italics added.) That is, Plaintiffs asked that the scope of arbitration be augmented to include issues related to the lis pendens. They insisted that they were not trying to avoid arbitration and the initial nonopposition to arbitration had been withdrawn only because they had discovered an allegedly improper encumbrance on the Property and needed to preserve access to the trial court to secure relief from the encumbrance.
On June 6, 2006, the court (Judge Marie S. Weiner) signed a stipulated order (the June 6, 2006 Stipulation) that ordered Plaintiffs' claims to arbitration. The parties agreed that Plaintiffs would remove the lis pendens from the Atherton property and Nguyen would deposit the net proceeds from a sale of the property into a blocked account to be held in trust. The parties also agreed to arbitrate "the disputes and controversies alleged in the Second Amended Complaint . . . in accordance with the provisions of the [Operating Agreement]." Finally, they stipulated that "[n]otwithstanding the stay of this action [pending arbitration], the [January 6, 2006 Preliminary Injunction], shall continue in effect during the pendency of the arbitration, . . . [and] the court in the above-captioned matter shall retain jurisdiction to determine and decide any issues pertaining to the policing or enforcement of said preliminary injunction . . . . The Court shall also retain jurisdiction to enforce the terms of this Stipulation and Order . . . ."
Arbitration Proceedings and April 2009 Final Arbitration Award
The arbitration commenced in January 2007 at JAMS (formerly Judicial Arbitration and Mediation Services, Inc.) before retired Justice Nat A. Agliano. In a February 2007 preliminary order, the arbitrator wrote, "The parties agree all issues framed by the pleadings are subject to this binding arbitration," and he authorized discovery, which continued through the summer. In September 2007, Plaintiffs sought and were granted leave to file a third amended complaint. In December 2007, the arbitrator struck Plaintiffs' punitive damages claim and otherwise denied a summary adjudication motion filed by Nguyen. The arbitrator ordered outstanding discovery to be completed in December 2007.
The first arbitration hearing took place in February 2008. An issue immediately arose about whether Plaintiffs' claims against Nguyen were personal or derivative of claims by TMT and whether, if those claims were derivative, the arbitrator had jurisdiction over the claims as TMT was not a party to the arbitration. The arbitrator granted Plaintiffs' request for leave to serve TMT with a demand to arbitrate the claims in the third amended complaint. Nguyen, acting on behalf of TMT, retained attorney David L. Andersen to represent the company in the arbitration proceeding.
Hearings resumed in April 2008. Nguyen and TMT argued that Nguyen's capital account needed to be adjusted to credit him for his contribution of the purchase option for the Property when the company was first formed. The arbitrator ordered bifurcation of the proceedings: in Phase 1, the arbitrator would determine the amount of each member's initial capital account, and in Phase 2, an accountant would perform an accounting "and thereby determine the relative rights and obligations of the parties," with any disputes about the accounting resolved by the arbitrator.
On June 10, 2008, the arbitrator issued an interim Phase 1 award that determined Nguyen's initial capital account in TMT was $14,950,000, the net value of the purchase option KLN assigned to TMT when it was first formed.*fn5 The arbitrator later determined that the value of Thomas Peirona's initial capital account was $0. On June 23, 2008, the arbitrator denied Plaintiffs' June 16 motion for reconsideration of the Phase 1 award. Subsequent settlement negotiations were unsuccessful.
Phase 2 of the arbitration, the accounting, followed. In January 2009, the arbitrator issued an interim Phase 2 award that systematically reviewed TMT's expenditures, characterized them as having been made for the benefit of TMT, Nguyen or Thomas Peirona, and adjusted the members' capital accounts accordingly. He found that as of December 31, 2007, the adjusted capital account of Nguyen was positive $6,406,525.91 and the adjusted capital account of Thomas Peirona was negative $1,777,215.59. In light of the value of the capital accounts, the arbitrator determined that "Nguyen had not taken excessive distributions from TMT as alleged by plaintiffs."
On the issue of Plaintiffs' tort and contract claims against Nguyen, the arbitrator gave Plaintiffs an opportunity to "make an offer of proof and, if warranted by the offer of proof, present evidence relative to [the] claims" at a January 2009 hearing. At the hearing, the arbitrator found Plaintiffs' offer of proof inadequate and denied the claims without taking additional evidence. In his Phase 2 interim award, the arbitrator ruled, "[T]he arbitrator, after hearing and considering plaintiffs' offer of proof, and after considering the entirety of the evidence previously introduced by plaintiffs including the evidence related to the accounting herein, determines the offered evidence wholly insufficient to sustain plaintiffs' claims and denies plaintiffs' request for further delay to prove such issues."
On the issues of indemnification and attorney fees and costs (deemed Phase 3 of the arbitration), the arbitrator ordered briefing in January 2009, and issued a decision in March. The arbitrator denied Nguyen indemnification for the costs of the arbitration because it arose from a dispute between the members and was not an proceeding brought or defended on behalf of the company. The arbitrator found Nguyen and Plaintiffs each prevailed in significant respects in the litigation and concluded neither was the prevailing party for purposes of awarding attorney fees. Specifically, "Plaintiffs requested an accounting and the accounting performed did result in decisions that quantified the parties' respective financial shares of TMT assets and liabilities. Considering the pre-accounting state of TMT's financial records, the accounting was essential in resolving various disputes about expenditures." He ordered Nguyen and Plaintiffs to bear their own fees and costs. The arbitrator found Kim Nguyen was a prevailing party and ordered Plaintiffs to pay her fees and costs, which he later determined to be $169,644.99.
On April 29, 2009, the arbitrator signed a Final Arbitration Award incorporating his interim awards.
Court Proceedings Pending Final Arbitration Decision During the more than two years that arbitration proceedings were underway, the parties repeatedly returned to court to seek enforcement or modification of the January 6, 2006 Preliminary Injunction or other forms of provisional relief.
April 2007 Appointment of Receiver Peirona had been receiving regular monthly distributions from TMT following the January 6, 2006 Preliminary Injunction, but stopped receiving them in March 2007. At about the same time, Plaintiffs learned that in January 2007 the family court presiding over Nguyen's then pending divorce case had held Nguyen in contempt for failing to make court-ordered payments from his TMT member distributions to Kim Nguyen, and thereafter Nguyen continued to fall short on his family court-ordered payments.
On April 2, 2007, Plaintiffs requested, and the court (Judge Beth Labson-Freeman) granted, an ex parte order prohibiting Nguyen from spending any TMT funds and appointing a temporary receiver to distribute TMT's funds consistent with the terms of the January 6, 2006 Preliminary Injunction (with payment of one-half of Nguyen's distributions to Kim Nguyen). On April 25, 2007, the court (Judge Kopp) signed a stipulated order and appointed a receiver.
May 2007 Loan Default The receiver learned that TMT's Loan was in default.*fn6 Moreover, the appointment of a receiver was itself a default event under the Loan documents, triggering a significantly higher interest rate and allowing the Lender to demand immediate payment of the entire unpaid principal. On May 16, 2007, Lender sent TMT a "Notice of Default."
With court authorization and the parties' consent, the receiver brought regular loan payments current and attempted to negotiate a resolution with Lender; however, negotiations were unsuccessful and default penalties and accelerated interest continued to accumulate. TMT failed to pay off the Loan by the scheduled repayment date of December 11, 2007, an additional default event. Lender threatened to appoint its own receiver to collect all rent payments.
February 2008 Removal of Receiver and Court Orders Regarding TMT Funds
At a January 16, 2008 hearing, the court (Judge Kopp) expressed concern that Lender was charging TMT "huge penalties" due to the appointment of the receiver. Judge Kopp announced that he would "take action to stop the bleeding of these loan proceeds" by "terminating the receivership and . . . order[ing] that the loan proceeds . . . be deposited with the clerk of the court[,] [¶] . . . [¶] . . . [u]nless the parties stipulate to some other repository of the money." On February 27, the receiver filed his final report and accounting, and on April 3, 2008, Judge Kopp approved the report and discharged him.
Lender's Foreclosure Suit Against TMT
On April 11, 2008, Lender recorded a Notice of Default and Election to Sell Under Deed of Trust on the Property and asserted its entitlement under the Loan documents to receive all rents on the Property. On April 25, Lender filed a foreclosure action against TMT and Nguyen in San Mateo County Superior Court and requested appointment of a receiver for TMT. TMT retained Andersen to represent it in the action and Andersen negotiated an agreement with the Lender allowing him to deposit Nektar's rent checks in his trust account and disburse the funds ...